PRAGUE We entered last year with rising inflation. It has been steadily rising since October 2019, and in February 2020, consumer prices were 3.7 percent higher than in the same period last year. This confused the head of the Czech National Bank (CNB), which subsequently made money more expensive by raising interest rates. But then the coronavirus pandemic arrived and took the lead not only over the lives of people and companies, but also over rising prices.
Gasoline and diesel in the Czech Republic have become cheaper again since last week, with the cheapest refueling in the Ústí nad Labem region |
In March, price growth slowed to 3.4 percent and fell until May. But along with the easing of the lockdown, prices began to rise again in June, and in July inflation was where it was in March. Then it went down again with a partial closure of the economy, to 2.7% in November.
“Inflation will continue to fall towards the CNB’s 2% target. In the background will be a slower rise in food, energy and wage prices, as well as a stronger koruna exchange rate. The main question next year will be whether the availability of the vaccine will actually lead to the elimination of the risk of infection and other waves of coronary crisis, ie how strong the subsequent increase in household demand will be. And the extent to which producers and sellers of goods and service providers will want to compensate for this year’s losses by raising prices, “concludes Michal Skořepa, an economist at Česká spořitelna and a member of the Committee on Budgetary Forecasts. The CNB also expects inflation to return to two percent.
Tobacco will increase in price and liability
Lower inflation is certainly good news for all. Especially for owners of savings, whose money will depreciate less than with inflation above three percent. But smokers will not be happy. According to the Czech Statistical Office (CSO), tobacco prices rose by 14 percent in the third quarter of this year compared to the previous third quarter. And the coming new year will bring bad news. Due to the higher excise tax, a box of cigarettes will increase in price by eight crowns, a pack of cut tobacco by 11 crowns and a box of heated tobacco by two crowns.
Compulsory liability will also become more expensive for motorists. In November, the Czech Insurers’ Bureau estimated that the average liability covered by compulsory liability increased by 5.2 percent year-on-year in 2020, while the average premium increased by only 2.9 percent during the year. So prices are behind costs and insurance companies are likely to try to make up the difference. How this will affect individual insurance companies cannot be generalized.
“Every motorist in our country receives an individual rate according to their own characteristics and their car. We try to reduce solidarity and take into account our own profile as much as possible, “says Eva Svobodová, a spokeswoman for Uniqua insurance company. “After taking into account the general situation on the vehicle repair market and also with regard to the development of insurance benefits for personal injury, we have increased premiums by an average of three to five percent in the past two years,” she added.
“We will decide exactly how we will change the price of compulsory insurance during the year. We continuously monitor the development of damage costs on the one hand and the price of insurance on the other. The truth is that in the long run the prices of everything have been rising – spare parts, mechanics in service and the price of the work of our people in the first line – people in the client center, liquidators, mobile technicians. And we have to reflect all this in the price of insurance, “describes Nela Maťaše, spokesman for Direct pojišťovna.
The differences in prices will increase. As Kooperativa spokesman Milan Káňa said, in addition to raising the price of insurance premiums for risk groups, which include young inexperienced drivers of cars and buses, vans or tractors, the harmless course of individual motorists will be taken into account even more. An increase in premiums should therefore avoid accident-free drivers.
Credit prices raise the risk
The question is also where credit prices will go next year. The pandemic has affected the ability of many clients to repay – and it has already cost banks a lot of money this year, which they have to make up for somewhere. “For consumer loans, an increase in interest rates cannot be ruled out due to the increased risk of default, however, this increase will be greatly dampened by the ongoing struggle for market shares,” estimates Skořepa.
Consumer price inflation slowed for the fourth consecutive year in November |
Banks will also approach corporate lending more cautiously. This may not only be reflected in an increased risk premium. From the signals sent by financial institutions, it is clear that some companies, especially in the field of tourism and hospitality, will be more or less taboo for them.
In general, the increase in the CNB’s key interest rate, which economists expect in the second half of next year, could also make loans in the Czech Republic more expensive.
Fare will be expensive somewhere
Public transport is also becoming more expensive in some cities. For example, citizens or visitors of Pilsen next year will pay 114 crowns more for an annual coupon, a total of 4,120 CZK. Similarly, the price of other types of tickets will increase.
Until recently, Prague was also considering increasing the fare. The head of the Prague transport company Petr Witowski said in an interview with LN at the end of November that revenues from ticket sales fell dramatically due to the coronavirus pandemic. Instead of the usual 20, they account for only 15 percent of financing the operation of Prague’s public transport. There are mainly fare from foreign tourists. In the game, the scenario was that the price of a 30-minute ticket would increase from the current 24 to 32 crowns and the price of an annual coupon for adults from 3650 CZK to 4015 or 4380 CZK. However, the Prague City Hall, the representative of the sole shareholder of the transport company, finally decided not to move the fare.
Adam Scheinherr, the deputy mayor (for Prague himself), said in mid-December that he would currently consider the increase immoral. “Many people have lost their jobs and have existential problems,” Scheinherr said. He added that in the future, however, Prague will not avoid rising prices.
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