Higher prices of alcohol, tobacco and food
The prices of alcohol, tobacco or food were another in order of year-on-year increase in the price level. For example, beer rose by 6.3 percent and tobacco products by 9.9 percent. From food, people paid extra for oils, fats, eggs or vegetables year-on-year, while fruit was cheaper than last August. The prices of clothing and footwear also continued to rise. Prices of catering services rose by 5.2 percent.
The reason for the month-on-month rise in prices was higher prices in almost all areas. For example, among foodstuffs, butter or eggs rose by more than five percent compared to the first half of the holidays, while potatoes became more expensive by almost six percent. Holiday prices have risen by about three percent since July, and there has been a roughly one-percent increase in prices for home maintenance products, fuels, and catering services.
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Statistics also published the development of prices in imports and exports for July. Month-on-month, export prices rose by 3.1 percent and import prices by 2.4 percent. “In July, the koruna strengthened significantly against the euro and the dollar compared to the previous year, which slowed down the year-on-year price increase,” explained Vladimír Klimeš, head of the CZSO’s industry and foreign trade price statistics department.
In July, export prices rose by 7.7 percent year on year and in imports by 7.9 percent. As in previous months, a significant year-on-year rise in prices of mineral fuels and other raw materials continued in July. In a month-on-month and year-on-year comparison, the prices of iron, steel, wood and electricity rose significantly in both exports and imports, according to statistics.
CNB estimate
August year-on-year inflation was one percentage point higher than estimated by the Czech National Bank (CNB) in the forecast. This deviation was mainly due to higher core inflation, which does not include seasonal effects, and faster growth in food prices. The forecast for other components of inflation has roughly been fulfilled, said Petr Král, director of the CNB’s monetary section.
“The published data represent a significant pro-inflationary risk to the CNB’s current forecast, which is in the direction of a more significant rise in interest rates compared with the current outlook,” Král explained.
According to him, the increase in consumer demand after the abolition of anti-epidemic measures is leading to higher prices, especially in the services sector. “By increasing prices, their providers partially offset low or zero revenues from closing times and the growth of their operating costs. In August, for example, the growth of prices in restaurants accelerated further, “added Král.
According to him, imputed rents, which have a relatively high weight in the consumer price index, also made a significant contribution to the rise in prices of services. This was related to the rapid growth of real estate prices and construction prices.
According to the current forecast, inflation will increase significantly above the upper limit of the tolerance band of the 2% inflation target in the second half of this year. Accelerated growth in food prices, high core inflation and rising fuel prices will contribute to this. According to the King, this will be compounded by the resumption of growth in regulated prices.
Inflation will rise even more, analysts warn
Data on August inflation increase the probability that the central bank’s bank board will raise the key interest rate more sharply at the currency meeting at the end of September, ie by half a percentage point to 1.25 percent. This follows from the statements of analysts. According to them, inflation will also rise in the coming months, and at the end of the year it could approach the 5% mark.
Even according to CNB Vice Governor Tomáš Nidetzki, it can be assumed that inflation will increase even further, by the end of the year it could be around four percent. “From the beginning of next year, we anticipate that this inflation will be dampened by the central bank’s actions and a certain calming in supplier-customer relations, which today significantly affect cost pressures, which are reflected in industrial product prices and subsequently consumer prices. With regard to the growth of prices, there will be some correction by consumers, because the question is whether the growth of prices will also be accompanied by the growth of sales, “he said in the Events.
“The fact that the gap between the CNB’s inflation estimate and reality widened sharply in August gives the central bank a strong reason to continue tightening monetary policy. The CNB will almost certainly raise interest rates at the end of the month. Of the options between continuing the modest steps of 0.25 percentage points and a more radical increase of 0.5 percentage points, the latter is becoming more and more likely, “said Patrik Rožumberský, an analyst at UniCredit Bank.
“The central bank’s response will not be long in coming. At the end of September, the CNB may raise interest rates by 0.5 percentage point, and it is likely to continue raising rates in the coming months, ”confirmed David Marek, chief economist at Deloitte. According to Komerční banka economist Michal Brožka, it is likely that the CNB will accelerate the pace of rate hikes by raising the key interest rate by 0.5 percentage point at the end of September.
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