Czech inflation in November hits six-year high

By bne IntelliNews December 10, 2007

Nicholas Watson Prague -

If anyone doubted that "agflation" was becoming a major problem in emerging Europe, then the news that Czech inflation hit a six-year high in November should put any uncertainty to rest.

Data released by the Czech statistical office on Monday, December 10 showed that the consumer price index in November grew 5.0% from the year before - the most rapid yearly increase since August 2001 and well above the market's expectation of 4.5%. Month-on-month consumer prices rose almost a full percentage point in November.

Economists had been expecting annual inflation to accelerate to about 5%, but not until the beginning of 2008 when VAT hikes kick in. Some suspect that vendors have taken advantage of the impending VAT rise and raised their prices sooner rather than later.

"This level of inflation was reached two months earlier. Because of this, the probability has increased that the peak in inflation in the first quarter of 2008 will turn out higher than we expected up to now - an inflation rate above 6% is now more likely," says Jan Vejmelek, an economist at Komercni Banka.

Food and warmth

The culprits behind the rise are, of course, food and fuel.

Prices for food and nonalcoholic beverages surged 4.0% on month, the highest rate recorded since 1993, while the annual rate reached an 11-year high of 10.4%. The prices of most foods rose, with bread and cereals up 11.3% on month. As well as the impending VAT hikes on foodstuffs in the Czech Republic, prices of food are rising globally as this "agflation" is underpinned by established changes in diet that accompany the growing wealth of emerging economies like China. In real terms, prices of food commodities have jumped by 75% since 2005. "One of the reasons is surely the global rise in foodstuff prices on massive demand in markets like China," says Martin Lobotka of Ceska Sporitelna, a division of Erste Bank.

Fuel prices rose almost 3% on the month, with diesel fuel rising by 6%, making it the highest price since 1969.

Some economists reckon that one of the factors that might work towards lowering the headline inflation rate somewhat over next few months could be a fall in the price of oil to about $80 per barrel from today's near $100. However, even though the prices of food and fuel are factors that the central bank can't directly influence with monetary policy, the danger is that they will transmit into inflationary expectations. Komercni Banka notes that a slight acceleration was also recorded in the adjusted inflation rate excluding fuels. In November, headline inflation was already 110 basis points above the level the central bank is forecasting.

The upshot is that while the news may not be enough to convince the central bank to raise interest rates again this month - a pre-emptive hike of 25 basis points was made in November - they will almost certainly go up at the first meeting in 2008.

Send comments to The Editor


Related Articles

UK demands for EU reform provoke fury in Visegrad

bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more

Czech food producer Hame seen next on the menu for Chinese giant

bne IntelliNews - Following a smorgasbord of acquisitions in late summer, China Energy Company Limited (CEFC) is eyeing yet another small Czech purchase, with food ... more

INTERVIEW: Babis slams coalition partners, but Czech govt seems safe for now

Benjamin Cunningham in Prague - Even as the Czech governing coalition remains in place and broadly popular, tensions between Prime Minister Bohuslav Sobotka and Finance Minister Andrej Babis remain ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss