Business Inflation in January at lowest level since 2009 but deflation avoided

12-02-2014 14:42 | Ian Willoughby

Year-on-year inflation in January fell to 0.2 percent from December’s figure of 1.4 percent, according to figures released on Tuesday by the Czech Statistics Office. Last month’s year-on-year rise in consumer prices was the lowest seen in the Czech Republic since way back in October 2009.

Photo: Kristýna MakováPhoto: Kristýna Maková Furthermore, compared to December, prices rose by 0.1 percent, which was the lowest month-on-month increase seen in January for a full two decades.

The year-on-year inflation data are in line with the expectations of analysts, with many saying that they provide some evidence that the Czech National Bank’s intervention to weaken the local currency in November had proved effective.

Following the central bank’s move – which was spurred by fears that the economy was heading for deflation – the crown fell to around 27.5 to the euro, where it remains.

Home Credit analyst Michal Kozub said that if the CNB had not taken action three months ago, the country’s economy would really have been in deflation in January.

Raiffeisenbank’s chief analyst Michal Brožka said January’s price development had been down to a fall in energy prices on one hand, and the weak crown – which had led to the resetting of may price lists – on the other.

The economy is recovering, said Brožka, but inflation is subdued. The market reaction had therefore been on the weak side, which should not come as a surprise to the central bank, he said.

Analyst Jiří Škop of Komerční banka said the Czech National Bank had been expecting higher inflation of 0.4 percent. However, the deviation is not marked enough to force the CNB to take fresh action, such as shifting the targeted exchange rate to 28 crowns to the euro, he said.

For its part, the Czech National Bank says it is waiting for more representative figures for this month, which will provide a clearer idea of inflation trends.

Releasing the inflation figures on Tuesday, the Czech Statistics Office said housing prices had contributed to a year-on-year fall in consumer prices for the first time since the foundation of the independent Czech Republic in 1993.

On the back of cuts in charges demanded by the energy regulator, electricity prices fell in January by 9.9 percent, while households found themselves paying 9.1 percent less for natural gas.

Healthcare prices also fell, by some 3.8 percent, thanks to the abolition of daily fees for hospital stays. Fixed line and mobile telephony charges also declined, as did prices of white goods.

By contrast, the prices of foodstuffs (fruit and veg in particular) and non-alcoholic drinks increased, albeit at a lower rate than a year previously. Tobacco products and spirits also cost Czech consumers more.

The Finance Ministry does not expect price rises to pick up speed before 2015 and predicts that the whole of this year will be marked by low inflation.

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