Year-on-year inflation slowed to 2.3 percent in January from December’s 6.9 percent.
Inflation reached its lowest level since March 2021. The decline was more pronounced than analysts and the CNB had expected, their estimates were around three percent.
The slowdown in inflation to 2.3 percent means the end of price increases and the end of uncertainty about the future, Prime Minister Petr Fiala said in a press release(ODS). According to him, the government’s actions, especially budget consolidation and pressure on manufacturers and traders to reduce prices, also contributed to the fall in inflation.
According to experts, this year should bring an end to the high inflation of previous years. According to the CNB’s February forecast, average inflation will reach 2.6 percent, while the Ministry of Finance estimated 3.1 percent in January. Last year, average inflation was 10.7 percent, which was the third highest value since the creation of the Czech Republic, 15.1 percent the year before.
“What I promised the citizens in my Christmas speech, when I said that the economic situation of people and companies will improve, is confirmed. And this is confirmed by the January inflation figures, which is 2.3 percent. It’s really good news.” said Prime Minister Fiala in a press release on Thursday.
“What does the good news mean? It means the end of the two-year price increase and the stress to which the Czech citizens of the company were exposed, it means the end of uncertainty about the future, the end of the price increase. We can also see it in specific items as they are now shown in the inflation assessment. I will only mention the much-discussed food prices. Food became cheaper by almost 4 percent year-on-year,” noted Fiala.
“Low inflation also means that loans will be cheaper this year, which will help people again, it will help companies and the entire economy. He also expects – and practically all experts agree on this – growth in real wages, something that people will directly feel on their budgets. The path to such low inflation was certainly not easy, but we managed it together,” said Fiala.
Fiala: For Babiš was 6.6 percent
“The value of January inflation is the lowest since March 2021 and is almost a third of the inflation our government assumed in December 2021 after Andrej Babiš, when inflation was 6.6 percent. The news is joyful, it is important, it means a really good outlook, an optimistic outlook for 2024. It is proof that the situation is improving,” Fiala pointed out.
And he went on: “I am certainly the last person to take all the credit and give all the credit to the governmentof course inflation is affected by a whole range of factors, there are also other key players who have an influence on how inflation develops, he added.”
In addition to reducing public spending, Fiala mentioned the effort to solve high energy prices in the European Union and the pressure on producers and sellers to push prices down, and the Czech Republic was not more expensive than in other EU countries.
According to the prime minister, the measures taken by the cabinet never led to what the citizens of some other European countries were exposed to in critical moments. “We took all measures so that there would be no shortage of fuel. Such a situation has never been recorded in our country,” added Fiala.
“Inflation is the lowest since March 2021. Moderate economic growth is expected this year, while real wages will rise by five to ten percent. Nevertheless, I expect that the opposition scaremongering will gain momentum in order to cover the favorable reality with black scenarios. They don’t have another program for a long time,” said the speaker of the House of Representatives, Markéta Pekarová Adamová (TOP 09).
Although inflation is still above the Czech National Bank’s two percent target, it has come much closer to it. Inflation was last at exactly two percent at the end of 2018 and in the spring of the same year, it was below the two percent threshold. Last January, consumer prices in the Czech Republic rose by 17.5 percent year-on-year. Month-on-month, prices rose by 1.5 percent in January this year.
According to statistics, the slowdown in year-on-year inflation was mainly influenced by housing prices. Above all, electricity prices moderated growth to 13.3 percent in January, when they grew by 142.4 percent last December. According to Pavla Šedivé, head of the CZSO consumer price statistics department, the drop in inflation was also due to a higher comparative base last year.
Kalousek: We can rejoice carefully
“Year-on-year inflation fell to 2.3%, close to our target. Thus, monetary policy was sufficiently tight in 2022 and 2023. But it is not won. Rates will remain elevated until it is clear that inflation will remain at 2%. The development of the exchange rate will also play a role,” points out CNB Deputy Governor Eva Zamrazilová.
“The year-on-year decrease in inflation to 2.3% in January is good news that we can all cautiously rejoice about. Citizens, government and opposition. But the arguments of politicians, whose merit it is, are laughable,” ex-Minister of Finance Miroslav Kalousek (TOP 09) remarked on the X social network.
Kovanda: Inflation in the Czech Republic is lower than in the eurozone
“January inflation will largely determine the level of overall inflation, i.e. the average annual inflation rate, this year as well as last year.” economist Lukáš Kovanda pointed out in a comment on the X social network.
“However, the main reason for the acceptable January inflation rate is the fading of the effect of the energy-saving tariff, which statistically reduced inflation in the last three months of 2022, so that in the last three months of last year it optically increased it again in a year-on-year perspective. However, these distortions have already disappeared from this year’s January inflation, which significantly contributes to the noticeable drop in year-on-year inflation between December 2023 (6.9 percent) and January 2024 (2.3 percent).
“Inflation in the Czech Republic is therefore lower than in Slovakia (Eurostat’s preliminary figure is 4.3 percent, according to Slovak statistics it is 3.9 percent), in Austria (Eurostat also has 4.3 percent), in Poland (the market estimate is 4 ,1 percent,) even than in Hungary (January inflation has already been published there, it is 3.8 percent). In Germany, according to German statistics, January inflation is 2.9 percent, and according to Eurostat’s estimate, it is 3.1 percent. In the entire eurozone, January inflation was 2.8%, according to Eurostat’s preliminary data. Inflation in the Czech Republic is therefore lower than in the eurozone,” added Kovanda.
“Today we can celebrate the day when high inflation was defeated. Year-on-year growth in consumer prices in January 2024 was at the level of 2.3 percent. This brought inflation back into its tolerance zone and came significantly closer to its target of 2.0 percent. The current level of inflation is the lowest since March 2021. We can therefore consider the inflationary episode we experienced in previous years to be over,” noted economist and adviser to the Prime Minister Štěpán Křeček.
“Thanks to low inflation, it can be expected that the Czech National Bank will continue to lower interest rates, which will help jump-start the Czech economy. However, when interest rates are reduced, the exchange rate of the koruna may weaken. In such a case, there could be an increase in the prices of imported products,” he pointed out in his comment.
CNB Governor: Core inflation is still high
“The new banking board started its work in July 2022 – at that time the year-on-year inflation was 17.5 percent. We changed the monetary policy strategy. And we succeeded in significantly reducing inflation,” said CNB Governor Aleš Michl.
At the same time, it moderates expectations regarding the decline in interest rates. “We will remain hawks who will do everything for price stability. Core inflation is still high.The weakening of the koruna is a pro-inflationary risk. The deficit of public finances is a pro-inflationary risk. These are the arguments why to reduce interest rates carefully and why we can stop the rate reduction process at any time. We expect rates to be at a higher level than we have been used to for the past 10-plus years,” he added.
