The Czech Republic experienced a further slowdown in inflation during April

Published: 25.05.2023 Related countries:  U.S.A. U.S.A.

According to recent data, the Czech Republic witnessed a continued deceleration in inflation during April, with the headline rate dropping to 12.7%, marking its lowest level since March 2022. This development could potentially alleviate the pressure on the central bank, which has been contemplating another increase in interest rates.

Market indicators indicate limited expectations for further interest rate hikes, as the previous tightening cycle between 2021 and 2022 had already raised the base rate by 675 basis points to 7.00%. Analysts interpret the April inflation data as supporting the view that additional rate hikes are unlikely. Factors such as easing gas prices and weakened demand contribute to this perspective, suggesting that inflation could continue to decrease.

Despite food prices rising by 17.3% in April, the growth of electricity prices, which had previously been a significant driver of inflation, slowed on a year-on-year basis. The central bank anticipates that headline inflation, which reached a three-decade peak of 18% in September of the previous year, will gradually decrease to single-digit rates in the second half of this year. Looking ahead, forward rate agreements imply expectations of approximately 50 basis points in interest rate cuts by the end of 2023.

Across Central Europe, neighboring countries are also dealing with elevated interest rates. Hungary's central bank, combating inflation exceeding 20%, recently reduced the upper limit of its interest rate corridor, potentially paving the way for future rate cuts. Similarly, Poland's central bank maintained its main interest rate at 6.75%, considering that slowing growth will help curb inflation.

Source: Prague Morning

Prepared by the team of foreign office CzechTrade and CzechInvest San Francisco