The Czech Republic’s Consumer Price Index (CPI) saw a significant increase in January, with the year-on-year inflation rate rising to 17.5% from 15.8% in December. On a monthly basis, inflation increased by 6%. This rise in inflation was attributed to the end of the energy saving tariff for households, which resulted in higher prices for electricity, natural gas, water, sewerage, and heat and hot water. The cost of electricity increased by 36.4% year-on-year and 139.8% compared to December, while natural gas prices rose by 87% year-on-year and 2.2% month-on-month.

The end of the austerity tariff and the traditional January adjustment of price lists for goods and services also played a role in the rise of inflation. The cost of food and non-alcoholic beverages also increased, with prices of rice rising by 35.1%, flour by 44.2%, pork by 36.8%, and eggs by 85%. The cost of soft drinks, fruit, and vegetables also increased, while spirits, beer, and wine saw a significant rise in price. On the other hand, fuel and oil prices decreased by 1.7%, and cars became 1.1% cheaper.

According to BHS chief economist Štěpán Křeček, the end of administrative interventions and some traders opting for a strategy of selling less with higher margins were some of the reasons behind the jump in prices in January. He also pointed out that the strong exchange rate of the koruna has prevented higher inflation as it has made imports into the Czech Republic cheaper, thus dampening imported inflation.

Akcenta analyst Miroslav Novak also expects inflation to reach single-digit levels in the summer, but warns that the high inflationary environment in the domestic economy continues to persist. He states that the high inflation will negatively impact household incomes and consumption throughout the year.

In conclusion, the rise in consumer price inflation in the Czech Republic in January was primarily due to the end of the energy saving tariff and the traditional January adjustment of price lists for goods and services. While inflation is expected to fall in the coming months, reaching single-digit levels during the year, it will still be multiple times the inflation target. The high inflationary environment in the domestic economy continues to persist and will negatively impact household incomes and consumption throughout the year.

Article by Prague Forum