Inflation has risen! No panic, it’s a paradox, reassure economists

Inflation has risen! No panic, it’s a paradox, reassure economists
Inflation has risen! No panic, it’s a paradox, reassure economists

Although inflation had been falling significantly throughout the year, in October it jumped from 6.9 to 8.5 percent, according to data from the Czech Statistical Office (ČSÚ). However, the prices of goods and services did not actually increase significantly. A year ago – and the prices are compared with the prices of a year ago when calculating interannual inflation, because it was a special situation. Non-market, electricity prices were adjusted from above. And so now the increase was expected long in advance.

“The October acceleration of year-on-year price growth by 1.6 percent to 8.5 percent was mainly due to last year’s reflection of the energy-saving tariff in electricity prices. If we did not include this cost-saving tariff in the calculation, the price increase would amount to 5.8 percent,” said Pavla Šedivá, head of the CZSO consumer price statistics department, regarding the so-called inflation paradox.

All economic experts agree on the rationale for high inflation. It’s just a matter of paper statistics. “In the last quarter of last year, the so-called savings tariff was in effect, with which the government compensated households for increased energy costs. However, the government did not take this measure this year, which is why the comparative base is lower,” says Martin Kron, an analyst at Raiffeisenbank.

Also according to Vít Hradil, chief economist of Cyrrus, this is solely the effect of the reduced comparative base from last October, when the energy-saving tariff artificially made energy cheaper. “Actual year-on-year inflation – adjusted for this effect – reached a value of 5.8 percent and thus dropped quite significantly compared to September’s 6.9 percent,” commented Hradil.

The year-on-year comparison is therefore dominated by the housing category – which includes energy even with a savings tariff – with inflation of 19.6 percent. This is followed by catering and accommodation (9.2%) and clothing and footwear (7.9%).

“It is cheaper year-on-year only for transport (-2.2%), where last year there was a market panic in fuel as a result of the Russian invasion of Ukraine. The prices for post office and telecommunications (3.3%) and food and non-alcoholic beverages (3.7%) were relatively moderate year-on-year. After taking into account the importance of individual categories in the consumption basket, year-on-year inflation was logically driven by distorted housing statistics (contribution of 5.2 percentage points), followed by food (0.7), recreation and culture as well as catering and accommodation (equally 0.6 percentage points ),” said Hradil.

According to the CZSO, prices rose by only 0.1 percent month-on-month. “This development was mainly influenced by the increase in prices in the food and non-alcoholic beverages section and in the clothing and footwear section, which was compensated by the drop in prices in the housing section,” says Pavla Šedivá from the Czech Statistical Office.

In the food and non-alcoholic beverages section, the prices of pork meat by 5.0%, eggs by 10.8%, fruit by 3.0%, vegetables by 2.2%, semi-skimmed milk by 5.8% and butter increased month-on-month by 5.0%.

The month-on-month drop in prices was recorded primarily in the housing section. The prices of electricity fell by 1.7%, natural gas by 3.0% and heat and hot water by 0.8%. Of food, the prices of non-alcoholic beverages were lower by 2.0%, poultry meat by 2.3%, potatoes by 5.4%, yogurts by 3.8% and sugar by 5.2%.

The prices of goods as a whole remained at the level of September, and the prices of services rose by 0.2%.

“The main thing that is annoying about the current data is the increase in the price of food, where, despite the continuous decrease in producer prices, consumers did not feel much relief. However, food is one of the highly volatile items and therefore does not say much about the real strength of inflationary pressures. So at the moment, demand inflation does not show too many warning values ​​and does not differ at all or only marginally compared to normal years,” added Hradil.

The inflation paradox will affect inflation in the next two months as well.

“Reported inflation will remain between 7 and 8 percent, while actual inflation will continue to decline. In January, we expect a drastic drop to around 3 percent due to fading energy and also food inflation. However, the uncertainty regarding the rate of January inflation remains enormous,” says ČSOB analyst Dominik Rusinko. He identified the traditional revaluation carried out by traders at the turn of the year as erratic factors, but also the increase in the price of electricity after the increase in the regulated component of its price.

Kateřina Hovorková

At Pení, he focuses mainly on personal finance and the labor market. He has been working in the media since the 1990s. She started at the Czech Press Agency, later went through the editorial offices of MF Dnes, iDnes, worked in Hospodářské noviny and on the website Aktuálně.cz…. Other articles by the author.

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