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Czechia Watch: Inflation climbed to 8.5%

Inflation has fallen steadily during this year, while in October it increased to 8.5% yoy (from 6.9%). The comparison base, which has been the main reason for the fall of inflation throughout the year, had the opposite effect this time.

If the so-called savings tariff in force for the last quarter of last year had not been included in the calculation, inflation would have been 5.8% so the increase of inflation is purely due to the statistical effect.

On a month-on-month basis, the price level rose by 0.1%, mainly due to price increases in food and non-alcoholic beverage section. Before start of winter season, there were the traditional price increases for clothing (+2.2%) and footwear (+3.2%). However, the retail data suggest that the Czechs are still relatively avoiding shopping for wintertime. Similar to September, price reductions were also observed in the housing sector in October, when prices of natural gas (-3.0%), electricity (-1.7%) and heat and hot water (-0.8%) fell.

The Czech National Bank had estimated October inflation at 8.3% in its recent macroeconomic forecast, so today's result did not give us much indication of how the Bank Board might decide at its last monetary policy meeting of the year (21st December 2023). We will have to wait for further data, especially wage growth in Q3 and also how wage negotiations in, for example, the healthcare and education sectors, will turn out. The likelihood of stability and of cut in the range of 25bps is almost identical, and the possibility of a more significant rate cut of up to 50bps cannot be ruled out yet.

Inflation structure
pp contributions to yoy% headline inflation
Source: Macrobond, Raiffeisen Research

As expected, inflation had risen again in October, but this was due to the lower comparison base of the previous year and, if this effect had not been taken into account, inflation would have fallen in October as well. In November and December, the same effect will be in force and inflation will be above 7%. For the whole of 2023, we expect average inflation to be just below 11%.

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Vratislav ZAMIS

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Vratislav is a macroeconomic analyst at Raiffeisenbank in the Czech Republic. He has joined the team located in Prague at the beginning of 2022. Vratislav studied economic policy at the Faculty of Economics of the Prague University of Economics and Business. During that time, he worked in an investment environment as an analyst with a focus on equity markets. Apart from current economic developments in Czechia and the CEE region he is particularly interested in the real estate market and its interconnection with the overall economic development.

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Martin KRON

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Martin is a macroeconomic analyst at Raiffeisenbank in the Czech Republic. Martin studied economic policy as a major at the Faculty of Economics and monetary economics and banking as a minor at the Faculty of Finance and Accounting of the Prague University of Economics and Business. After the graduation in 2021 he started to work in Department of Financial Management at Ministry of Culture. Since June 2023 he has joined the economic research team located in Prague. With his academic background he is very interested in the monetary and the fiscal policy and their impact on the economic performance. He is a passionate sport fan so in his free time he enjoys playing mostly tennis and football with his friends.