Consumer prices in the Czech Republic increased by 1.4 percent year-on-year in February, marking the lowest inflation rate since October 2016. The data comes from a preliminary estimate published by the Czech Statistical Office (CZSO). Meanwhile, on a monthly basis, consumer prices fell by 0.1 percent, showing a slight decrease compared with January.
A key reason behind this slowdown in inflation was the decline in energy prices. As a result, overall consumer costs dropped more than analysts had expected.
Inflation Below the Central Bank’s Target
The February figure was lower than both the target and the latest forecast of the Czech National Bank (CNB). In fact, financial markets had predicted that inflation would remain at the same level as in January rather than decrease.
According to Petr Dufek, chief economist at Creditas Bank, the trend in inflation is becoming more favorable. In particular, this improvement is linked to falling prices of some food products. The decline reflects the reduction in agricultural production prices, which has gradually been passed on to consumers.
Government Measures Help Reduce Inflation
Another factor contributing to lower inflation is a policy change regarding renewable energy fees. Since the beginning of the year, these fees have been transferred from consumers to the state. Consequently, year-on-year inflation has decreased by about 0.4 percentage points.
However, even after considering this administrative measure, inflation is still below the CNB’s target level.
Rising Service Prices Remain a Concern
Despite the overall slowdown in inflation, service prices continue to rise relatively quickly. Although the growth in this sector slowed compared with January, prices are still increasing by about 4.5 percent year-on-year. Therefore, the central bank cannot completely ignore this development.
The main cause of this trend is ongoing tension in the real estate market. Specifically, housing costs influence inflation through rents and imputed rents, which estimate the hypothetical cost homeowners would pay if they rented their homes.
Previous Inflation Trends and Future Outlook
Inflation had already slowed in January, when the annual rate reached 1.6 percent, the lowest level in more than nine years. Similarly, experts attributed this decrease mainly to the transfer of renewable energy payments from consumers to the government.
The final February inflation data will be published by the Czech Statistical Office on March 10. So far, preliminary estimates in recent months have been confirmed by the final results.
Looking ahead, economists suggest that interest rate cuts could return to discussion. Although financial markets currently expect no rate reduction in the second quarter, this possibility could reappear if geopolitical tensions in the Persian Gulf are resolved within the next two months.
Reference: https://www.novinky.cz/clanek/ekonomika-inflace-byla-v-unoru-nejnizsi-za-10-let-40565548
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