European Union (EU)

The average inflation rate for the year 2022 was 15.1% in the Czech Republic, which is the second highest value since the creation of an independent state. The prospects for its reduction in 2023 are not yet very promising, both according to the same price stability supervisor CNB and according to Czech bosses.

This results from a study by PwC, according to which fifty-three percent of CEOs of Czech companies expect a double-digit average annual rate of inflation this year.

40% of them estimate that inflation will be between 11 and 15%, 11% of CEOs expect inflation of 16 to 20% and 2% estimate that inflation will even rise to 20%.

The rest of the survey respondents see this year’s inflation as somewhat lower. 45% of respondents assume inflation could vary between six and ten percent, three percent think inflation could vary between three and five percent. However, none of them yet believe in reaching CNB’s two percent goal.

“The directors are well aware of the situation in their companies, so the reality exceeds the statistics. This is also why it can be expected that inflation will not fall rapidly again this year. Companies will mainly have to deal with the “expensive energy, even if they will be partially relieved by the price caps. Even in 2023, however, energy will be the main driver of price growth,” said Olga Cilečková, PwC’s partner for financial risks, treasury and capital markets. capital.

Price increases will continue to be more influenced by input costs in production, with 8 out of 10 managers expecting their prices to rise further this year, despite already being significantly more expensive last year. Half of CEOs said their companies have had to raise the prices of their products by more than ten percent, and another third have even raised prices by more than fifteen percent.

Inflation expectations among Czech leaders are thus well above the two percent target the CNB wants to reduce inflation to. But even the central bank itself does not expect to be successful this year.

According to CNB forecasts, inflation will peak in January and February of this year, before slowing down and falling below 10 percent in the second half of the year. In a year’s time, in January 2024, according to CNB Deputy Governor Eva Zamrazilová, it could already “start with a three” and approach the two percent range plus or minus one percentage point.

However, bank board member Tomáš Holub is not so optimistic. “What is at stake now is whether we will land relatively smoothly without further monetary policy action on the 2% target in 2024, or whether there is a risk that inflation will stabilize at uncomfortably high single-digits.” I have some concern, I would prefer to see a slightly tighter setting of monetary policy, just to prevent that,” CT Otázky Václav Moravec said on the discussion program.

According to a survey by PwC, most CEOs fear the Czech Republic will face a recession this year.

“Only nine percent of the top professionals think we will avoid a recession. CEOs see the problems high inflation and expensive energy prices are causing for their companies. Several companies will reduce or completely stop production in the winter months and they will try to save money. This will most likely lead to a decline in GDP,” comments Jiří Moser, managing partner of PwC Czech Republic, on the survey results.

It is therefore possible that this year will also be challenging for domestic companies, as last year, together with 2020, was already one of the most difficult periods for 40% of respondents.

Although the European Central Bank will not publish a report on the opinions of citizens of the Eurozone until this Thursday, it can already be said that they are more optimistic in the west and south of the Union.

In three of the four largest economies of the Eurozone (Germany, Spain and Italy), according to a report by the European Commission, fears about inflation remain average and tend to decrease, while the French are more concerned about prices than usual and the same mood prevails among Croatians, who introduced the euro in January this year and there the price jump, which was solved by the government there.

Germans remain relatively wary of inflation, which may be due to, among other things, the way inflation destroyed the German economy a hundred years ago, according to Bloomberg. On the other hand, the recent price hike here has eased considerably thanks to a government-imposed cap on gas prices and a surprisingly warm winter.

Spain is currently fighting high prices with a package of measures worth 10 billion euros. This year should push for a gradual reduction in prices. Fuel subsidies have been abolished here, but Prime Minister Pedro Sanchez has introduced tax breaks on staple food items to moderate food inflation, which hovers around 15%.

Italians are the most concerned about the impact of the ECB rate hike on economic growth and the state’s ability to finance public debt, despite their inflation being among the fastest. The government here has spent around €75 billion to protect households and businesses from the worst rise in energy prices, including tax cuts and fuel discounts at the pumps.