Czechia reports a big drop in inflation: What does it mean for consumer prices?

Inflation is slowing down in Czechia. Compared to the previous month, consumer prices decreased by 0.2 percent in April. Annual inflation also slowed. Compared to last April, prices rose 12.7 percent which was 2.3 percentage points less than March’s year-on-year increase, the Czech Statistical Office (ČSÚ) said. According to analysts, inflation should continue to fall and return below the 10 percent mark in the middle of the year.

“Consumer price development in April was considerably influenced by food prices. They moderated their year-on-year growth to approximately 17 percent and in comparison with March they even dropped. It was their first month-on-month decrease from October 2021,” Pavla Sediva, head of ČSÚ’s consumer price statistics unit, said.

Compared to last month, vegetables decreased by 5.0 percent, eggs by 12.9 percent, semi-skimmed milk by 12.3 percent, non-alcoholic beverages by 2.3 percent, oils and fats by 2.6 percent, poultry by 1.5 percent, smoked meat and sausages by 0.9 percent, and sugar by 4.0 percent. Not all food was cheaper, though. Potatoes were higher by 12.5 percent and pork by 1.9 percent.

In the recreation and culture category, prices of package holidays were lower by 5.9 percent. Price drops in alcoholic beverages and tobacco came from lower prices of spirits by 3.0 percent and wine by 3.1 percent.

Month-on-month, prices in April rose for furnishings, household equipment, and routine household maintenance. Prices of goods and services for routine household maintenance were higher by 3.7 percent.

In restaurants and hotels, prices of catering services were higher by 0.7 percent and accommodation services by 2.2 percent. Prices of goods in total dropped by 0.3 percent, while prices of services went up by 0.1 percent.

Even though year-on-year inflation slowed, many items are still much more expansive than they had been last April. Sugar increased by 60.9 percent, eggs by 41.2 percent, semi-skimmed milk by 19.2 percent, vegetables by 18.3 percent, and oils and fats by 10.5 percent. Electricity prices grew by 24.8 percent, natural gas by 53.1 percent, and heat and hot water by 40.9 percent.

Economist Lukáš Kovanda saw the annual inflation result as good news. “Inflation in the Czech Republic was unexpectedly low in April. Only 12.7 percent. Virtually no one expected such a low level, not even the Czech National Bank (ČNB),” he tweeted.

He added that the ČNB would likely interpret the inflation results as a success of its monetary policy over the past year. The bank has been fighting inflation through the exchange rate and strengthening of the crown.

Most analysts had expected year-on-year inflation of over 13 percent and that it would also slightly increase compared to March, but they foresee a further slowdown in the rate of price growth.

“Inflation should continue its gradual decline. This is primarily influenced by the comparative base,” Česká spořitelna analysts said. Prices had already been rising last year, so the term of comparison for current prices is already high.