Anyone can easily calculate how much weight they have lost since the pandemic
Nevertheless, Aleš Michl began to stylize himself in the role of a hawk just now, when price growth has stopped almost two years after he took over as head of the Czech National Bank. According to him, the lowering of interest rates must not be overdone, because the risk of inflation starting again is not negligible. They are still rapidly increasing the price of services.
Looking at the current numbers taken out of context looks good. Price stability has returned. But when that context is added, the reality is significantly worse. Goods and services are more than 30 percent more expensive in total than at the beginning of 2020, when the covid pandemic came. The average real salary is almost ten percent lower.
Everyone can calculate for themselves how much he has lost weight in the last four years. If his income has not increased during that time at least as much as the prices, i.e. by the 30 percent, he has a lower standard of living. For what he earns, he buys less than then. That’s just hard real data.
The same applies to savings. Anyone who did not have ten thousand kroner saved or invested at least in such a way that they have at least 13 thousand kroner in their account is poorer. He lost his savings or investments. Inflation destroyed them. What the era of great inflation, which the Czech National Bank under the leadership of Aleš Michl refused to slow down by raising interest rates at a higher rate, deprived us of, can also be seen from a longer horizon.
Record after record
The record economic collapse that came in 2020 with the covid pandemic was preceded by an era of one of the strongest prosperity and enrichment between 2013 and 2019. The average real wage rose by 28 percent from 2015 to 2021, when it first began to decline.
However, it was precisely the era of great inflation in recent years that deprived many people of a large part of the wealth and rise in living standards from the era of this great prosperity. According to the current data of the Czech Statistical Office, prices were 50.2 percent higher this February than in 2015. Again, everyone can calculate how they are doing. If his salary has not increased by at least half during that time, he is poorer than ten years ago.
Deflation is feared by many even more than inflation
The problem with inflation is that prices that once rise to a certain level for a long period of time usually do not come back down. The idea that goods would become cheaper by a third and prices would return to the level of 2020 is beyond reality. This would effectively mean deflation, a fall in prices that many fear even more than inflation.
Such a situation could only bring about a drastic fall in the economy and a significant drop in spending in the entire wider range of services. Traders would then have to go down with prices. And people, on the other hand, would wait for it to be even cheaper tomorrow, and they would postpone purchases. This would push the entire economy down.
However, it cannot be ruled out that this may happen to some goods, especially with weak economic growth, which many institutions, including the Ministry of Finance, expect. In the United States, for example, the prices of some durable goods such as furniture, household equipment or used cars are currently falling.
The question is how investors will believe that a central bank that has been passively watching high inflation can maintain price stability in a stagnant economy with very weak growth and thereby catch up on the standard of living lost in recent years.
