Updated

Updated · Bloomberg · Jun 19

Czech Premier Babis Attacks First Rate Hike in 4 Years as Inflation Stays EU’s Second Lowest

Updated

Updated · Bloomberg · Jun 19

Czech Premier Babis Attacks First Rate Hike in 4 Years as Inflation Stays EU’s Second Lowest

Q: Why did the Czech bank raise rates when the Premier claims inflation is the EU's second lowest?

The Czech National Bank raised rates because it is reacting less to today’s low headline inflation and more to underlying domestic inflation pressures and the risk that prices will rise later. Babis’s claim refers to headline inflation, which was low by EU standards at about 2.1% in May and 1.8% on the EU-harmonised measure. But the CNB has focused on core inflation, which strips out volatile items such as energy and food and was still running near 2.9%. That suggests price pressures inside the economy remain stronger than the headline number implies. The bank has pointed to fast wage growth, especially in services, stronger household consumption, rising credit, and persistent housing-market pressures. Real wages rose 6.4% year on year in the first quarter, while property prices and rents have stayed firm. Those are the kinds of domestic trends central banks worry can keep inflation elevated even when fuel or food prices temporarily soften. The CNB also appears to be acting pre-emptively. It has warned that external shocks, including higher energy costs linked to Middle East tensions, could feed into inflation expectations. Forecasts cited by analysts suggest headline inflation could stay below 2.5% for a while but rise toward 3.5% in early 2027. So the dispute is partly about which inflation measure matters most. Babis is highlighting the current headline rate; the CNB is targeting future price stability and sees core inflation and domestic demand as the bigger risk.

2 articles · Updated · Bloomberg · Jun 19

Andrej Babis escalated his clash with the Czech National Bank, saying its rate increase will damage the economy and was unjustified.
One day earlier, the central bank lifted borrowing costs for the first time in four years, arguing tighter policy was needed to curb domestic price pressures.
Babis said there was no reason to raise rates when Czech inflation is the European Union’s second lowest, and he argued monetary policy cannot influence price growth.
The dispute sharpens a public rift between the billionaire premier and the central bank over how to respond to inflation risks.