Czech inflation will jump to 9.2% in January and 9.6% in February as the expiration of a tax break and repricing by suppliers raises energy prices, adding to domestic price pressures, central bank analysts said on Monday.
The Czech central bank has been the most aggressive in central Europe in responding to price spikes driven by international energy prices and logistics bottlenecks, but also domestic demand and economic recovery amid a very tight labour market.
The bank raised its benchmark repo rate to 3.75% from 0.25% in mid-2021, and is expected to tighten further when the board meets on Feb. 3, in an attempt to convince the public that inflation will get back toward its 2% target by early next year.
A large factor in the January inflation jump is the expiration of a two-month value-added tax break on energy which expired in December, Dana Hajkova and Radek Snobl wrote in a blog post on the bank’s website.
“Together with the growth in heating prices and other items, regulated prices will jump in January, according to current estimates, from December’s -2.9% to 13%, which in itself will accelerate year-on-year inflation versus December by 2.2 percentage points,” they wrote.
“In the following months, the dynamic of regulated prices will rise slightly further to almost 14%, with the highest growth expected in electricity (27.7%) and gas (21.7%) supplies.”
Inflation jumped to a 13-year high of 6.6% in December. The bank has said it did not exclude prices breaching the 10% mark in the coming months.
They said a faster-than-expected economic recovery in the second half amid a tight labour market was adding to inflationary pressures, aided by government coronavirus aid programmes and households spending savings accumulated in the pandemic.
Domestic inflation has also been driven up by the local index including “imputed rent” which includes the costs of home repairs and new dwellings, and which the bank said raised the national inflation index by 0.9 percentage points versus Eurostat’s harmonised indices.