Czech Inflation Accelerates Further in June, Hits Above 17%

Czech inflation jumped to a fresh three-decade high in June, hitting a rate of 17.2% year-on-year and posing a challenge to pledges of interest rate stability from a new central bank governor after sharp policy tightening over the past year.

The rise in inflation, which is at its highest rate since 1993, was above the 17.0% expected in a Reuters poll.

With price growth soaring since last year, the Czech National Bank (CNB) has lifted its key interest rate CZCBIR=ECI by 675 basis points, to 7.00%, since June 2021, trying to anchor inflation expectations.

Other central European policymakers have also increased borrowing costs amid price pressures from both external issues such as supply chain problems and fast-rising energy prices in the wake of Russia’s invasion of Ukraine and local factors like tight labour markets and increasing wages.

But a change of guard on the bank’s seven-member board has led many analysts to predict an end to the policy tightening cycle.

New governor Ales Michl, a board member since 2018 who has opposed rate hikes over the past year, pledged rate stability when he was appointed in May.

“Inflation is not only moving away from the CNB’s target but also its forecasts,” said Petr Dufek, chief economist at Banka Creditas. “The central bank will again be faced with the decision of whether to raise its base rate already at its August meeting.”