Czech Inflation Starts To Ease, Stands At 16.7%

Czech headline inflation eased to 16.7% year-on-year in February, reinforcing the view that surging price growth is moving past a peak as the central bank seeks to maintain stable interest rates.

Inflation around central Europe has surged in the past year, more than elsewhere in Europe, as food prices have jumped alongside energy costs.

Central banks in the region started battling price pressures in 2021, sooner than other European Union policymakers, and have thus ended hiking cycles even as global central banks like the ECB and U.S. Federal Reserve continue to tighten.

Central Bank Policy

The Czech central bank has held steady on policy since mid-2022 despite criticism it needs to do more to secure inflation returning to its 2% target.

Inflation slowed in February, after hitting 17.5% in January amid repricing actions at the start of the year. Analysts in a Reuters poll had expected the headline rate at 16.6% in February.

On a monthly basis, prices rose 0.6%.

Signs Of Discounts

Inflation “only symbolically neared the inflation target,” Banka Creditas chief economist Petr Dufek said, adding the first signs of discounts on goods were starting to appear.

“Weaker demand, which is seen in falling household consumption and retail sales, should increasingly limit the scope for price increases,” he said.

“Sellers will have to more often decide whether to have full warehouses or cut prices.”

The Czech economy slipped into a technical recession in the fourth quarter under the weight of sinking household spending as consumers cut back on purchases due to high inflation.

The central bank raised its key interest rate to 7.00% from 0.25% between June 2021 and June 2022, but new Governor Ales Michl has advocated stable rates to anchor the economy since taking the helm in July last year.

Generali Investments CEE chief economist Radomir Jac said inflation should continue easing in the coming months, reaching single digits by the third quarter.