Czech Republic: Inflation eases despite VAT increase
February 11, 2013
In January, consumer prices jumped 1.3% over the previous month, which was well above the 0.1% increase observed in December and marked the highest monthly rise since January 2012. The reading came in as a result of the government's decision to increase the value-added tax (VAT) by one percentage point. According to the national statistics office, the VAT increase had a relevant impact on prices for housing, water, electricity and gas, as well as on prices for food and non-alcoholic beverages.
Despite the monthly jump, annual headline inflation fell from 2.4% in December to 1.9% in January, as the government also raised the VAT in January last year. The figure undershot both market expectations that had inflation easing to 2.1% and the monthly Central Bank's estimate of 2.0%. At the current level, inflation remains within the Central Bank's target of 2.0% (with a tolerance margin of plus/minus 1.0 percentage points).
The Czech National Bank expects inflation to inch down to 2.3% by the end of 2013. For 2014, the Bank predicts inflation to fall further to 1.7%.
Author: Ricardo Aceves, Senior Economist