Inflation in the Czech Republic accelerated to 9.9 percent year on year in January from 6.6 percent in December. Year-on-year consumer price inflation was the highest since July 1998, when it stood at 10.4 percent. Inflation is so high that there will be an extraordinary valorisation of pensions, averaging CZK 1,015. The increase is intended to at least partially compensate pensioners for rising prices across the economy.
According to experts, this is not a big surprise in the development of inflation. Growth estimates for January were close to 9.9 percent. The Czech National Bank (CNB) predicted 9.4 percent, analysts 9.3 to 9.8 percent.
“But the ever-accelerating pace of rising prices is striking,” said Citfin analyst Tomáš Volf. “The Czech National Bank (CNB) has been raising rates for a long time and it must be said that it is raising them at a relatively sharp pace. It would be difficult to find a central bank in the world tightening monetary policy so tightly. flies up, “adds the analyst.
According to the economist of the Czech Banking Association, Jakub Seidler, the rise in prices was relatively flat in January, with a significant impact on rising energy prices. “This has so far been modest, also due to the remission of VAT in the last months of last year, while in many European countries energy prices have accelerated at a double-digit rate,” says Jakub Seidler, chief economist at the Czech Banking Association.
In a month-on-month comparison, consumer prices rose the most since January 1993, according to the Czech Statistical Office (CSO), by 4.4 percent.
Electricity prices rose by 38.6 percent month-on-month and gas by 31.3 percent. “At the same time, there was a traditional January revaluation of retailers in other categories, and due to rapidly rising costs and labor shortages, this time it was logically more forceful than usual,” says Cyrrus analyst Vít Hradil.
In the year-on-year comparison, the category of clothing and footwear (15.9%) continues to lead, followed by transport (14.6%) and the already mentioned housing (14.4%). “Due to its significant weight in the consumer basket, housing had the largest share in year-on-year inflation, adding 3.7 percentage points. “adds Hradil.
Although the January result is high for Czech conditions, according to analysts, given the current situation, it can paradoxically be considered more of a reason for cautious optimism.
“In the current unprecedented inflationary environment, there was a real chance of a significant upward surprise, which did not occur. January inflation is traditionally decisive for the rest of the year, as the new price lists set the trend for a longer period,” adds Hradil.
Retirees will receive an average pension of a thousand
With rapidly rising inflation, it is time for extraordinary valorisation of pensions. The aim is to maintain the purchasing power of pensioners at a time of sharp rise in prices.
The condition for the extraordinary valorisation of pensions is that prices will increase by at least five percent compared to the last month, which was taken into account for the January valorisation. And that was in June 2021. After announcing the January inflation rate, it is clear that this condition is met. The price growth, after recalculation, reached 8.2 percent in the period under review.
So how many extra crowns will retirees receive and when? According to Michal Hlaváček, an analyst at the Office of the National Budget Council, the extraordinary valorisation of pensions will amount to an average of 1,015 crowns.
“Thus, the average pension will increase from 16,274 crowns to 17,289 crowns, ie by 8.2 percent. For the state budget, the extraordinary valorisation of pensions will mean an additional expenditure of about 20.3 billion crowns. These additional expenditures were not included in the original draft budget. however, the new draft budget already in principle already takes into account these additional costs, “Hlaváček tells the online daily Aktuálně.cz.
For extraordinary valorisation, only the percentage acreage increases. So from the average pension, which is now 16,274 crowns, we subtract the basic area, which is the same for everyone and amounts to 3,900 crowns. The amount of CZK 12,374 will remain. Of this, the increase is 8.2 percent 1015 crowns.
According to Jakub Augusta, a spokesman for the Ministry of Labor and Social Affairs, people will probably receive information about a specific increase in their pension in March. The first higher pensions are expected to be paid in June. “The government will discuss the increase at the turn of February and March,” Augusta added.
Above the EU average
According to experts, year-on-year inflation is likely to exceed ten percent in the coming months and will start to slow down significantly from the middle of the year. They estimate this year’s full-year average at about nine percent.
While in previous months inflation in the Czech Republic was rather average according to the EU methodology, in January it exceeded the EU average. In January, the harmonized index of consumer prices (HICP) in the Czech Republic rose to 8.8 percent from 5.4 percent in December. The January estimate for the euro area, which usually differs only slightly from the figure for the EU as a whole, is 5.1 percent, Czech statistics reminded on Monday. They added that the final numbers for the EU are not yet known.
At the same time, CZSO officials warned that the rise in energy prices, which has been significantly affecting inflation recently, will continue, according to information from suppliers in the Czech Republic.
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