Czech inflation bites, and experts think it’s even worse than feared

Inflation has been driving up the cost of living in the Czech Republic for much of this year, affecting costs for transport, housing, energy and every-day food items.

Now, the latest data from the Czech Statistical Office shows the seemingly unstoppable rise in prices is continuing, with inflation reaching 6% in November in a year-on-year comparison. This is the highest level of inflation seen since the global financial crisis of 2008.

Analysts say the biggest changes in the cost of living in November related to transportation. Car prices rose by 7.4%, while fuels and oils rose by an average of 32.8%. Indeed, November saw the highest prices for petrol since 2012, at CZK 37 per liter. The cost of fuels is being driven up by a shortage of supply across Europe and consequent price increases on the wholesale market.

It’s thought the increase in inflation is also being driven by spiraling household costs. Routine maintenance and repair services are 9.9% more expensive year on year, while water and sewage costs rose by 5.5% in November. Increased energy costs also played a part in driving up inflation, despite a waiver on VAT for energy which reduced energy costs compared to October. Indeed, it’s thought the VAT waiver is the only reason inflation did not reach even higher levels.

“For many customers, there has been a sharp rise in energy prices, but this has been counteracted by the waiver of VAT payments. If it weren’t for this, the year-on-year inflation rate would not be 6%, but 7%,” Michal Brožka, an analyst at Komerční banka, told Idnes.cz.

The VAT waiver may have helped paper over some of the cracks emerging in the Czech economy, but it is significant that those with enough money to invest are increasingly concerned about inflation. Indeed, Alena Tkáčová, Sales Director at J&T Bank in Prague, said in an interview with Hospodářské noviny that many Czech multi-millionaires believe current inflation levels are even worse than the official figures suggest.

“They see inflation as the biggest threat to their wealth. They think inflation is actually much higher than officially announced 6% or 7%,” she said. Such high levels of inflation are now making low-yield investments less attractive, meaning many of the nation’s rich are restructuring their portfolios to ensure their returns keep up with rising prices.

But the economic problems are likely to be felt hardest by those with little cash to spare. The cost of every-day food and drink products continues to rise, as have clothing and footwear items and tobacco and alcohol. With inflation biting hard amid the traditional frenzy of consumerism around the festive season, rich and poor alike will be looking at their reduced purchasing power with concern.