The Bank Board assessed the risks and uncertainties surrounding the inflation outlook as overall balanced at its last meeting, according to CNB Minutes. Meanwhile, all options for rates are still on the table when looking ahead. It was agreed that the deflationary effect of the government’s subsidised electricity prices is a one-off factor, and the primary impacts should be excluded from monetary policy-relevant price developments. According to Deputy Governor Eva Zamrazilova, the primary impact of these regulatory interventions dissipates within a year and does not reduce demand-driven inflationary pressures in the economy. Of course, these administrative factors may gradually bring about anti-inflationary secondary effects, but they may be outweighed by improved disposable income and elevated spending.
According to Jan Kubicek, CNB interest rates are neither loose nor restrictive, while the development of public finances represents an expansionary risk. Jan Procházka stated that the CNB is now in a good position and, with the fading of some inflation risks, space may open for a slight decrease in interest rates. At the same time, the economy may gradually enter an overheating phase, posing an upward risk to wage dynamics, as Jan Frait and Jakub Seidler agreed. The CNB expects average wages to gain 6.1% this year. We take on board the expected 6.8% annual wage increase for the public sector from April onward but believe the private sector might be a bit reluctant to boost wages excessively in a low-inflation environment, which brings us to 5.6% wage growth for the whole economy this year. It’s fair to acknowledge that this is a good candidate for an upward surprise, should Czech industry lift off properly.