Czech Republic: Inflation reaches new all-time high in July
Consumer prices rose 1.33% from the previous month in July, decelerating slightly from June’s 1.58% increase. The softer print was due to milder increases in prices for utilities and transport as well to a drop in food prices.
Inflation rose to 17.5% in July, above June’s 17.2%. July’s result was the highest inflation rate on record. Meanwhile, the trend pointed up, with annual average inflation coming in at 10.6% in July (June: 9.4%).
Commenting on the short-term outlook, Jiri Polansky, analyst at Erste Group, stated:
“Against previous estimates, we are moving the peak of inflation upwards to 19%, and also prolong the length of the period during which inflation will be high. In the previous forecast, we perceived such a development as one of the main risks, and current data show it will probably come true. The main reason will be further adjustments to the electricity and gas price lists, which will take place in the second half of this year (mainly in Q3 22). The base effect will act in the opposite direction, which will be the main factor behind the gradual (approximately 1.5-2 years) return of inflation towards the target. The anti-inflationary development of domestic demand will act in the same direction, as we expect a shallow recession of the Czech economy during the second half of this year. And last but not least, we also expect a correction of some prices.”
Meanwhile, Frantisek Taborsky, analyst at ING, commented on the likely repercussions on the monetary policy stance:
“Inflation in July showed a further slowdown in the month-on-month rate, despite the announced record hike in household energy prices. We believe inflation will continue to rise, but the pace may be more gradual and peak later, making things easier for the dovish Czech National Bank. We see less risk of an additional rate hike after today’s number.”