Hostem I ask Vladimír Dlouhý was the president of the Czech Chamber of Commerce.
Czechia had the highest interest rate in over twenty years since Thursday. The Czech National Bank reached the fifth above-standard increase and raised interest rates to 5%, the most since 2001. Lower inflation is to blame, which hit double digits in February and, according to experts, could reach the 15% mark in March.
Former finance minister Alena Schillerová (ANO), for example, has long criticized the increase in interest rates. According to her, this will not prevent inflation, housing will become inaccessible to people and the already fragile pace of economic growth will slow down. However, economists themselves expect this due to the ongoing war in Ukraine, and according to CNB Governor Jiří Rusnok, economic growth is expected to fall by about half this year.
How will rising inflation affect Czech citizens and businesses and where will its price rise? And where will the Czech economy weaken the most?
You can read the whole conversation in the audio player, in your favorite podcast app, or in the video.
What was said in the interview?
1h30 Czechia had the highest interest rate in 20 years since last week – 5%. Will this help slow record inflation?
This won’t help at all, as the current inflation is a combination of two factors – cost, i.e. increased energy, fuel, etc., many of which are imported from China. ‘outside. And raising interest rates in the face of this inflation will not help. On the other hand, all possible analyzes show that in addition to this inflation, demand pressures contribute to overall inflation. People have been saved since the covid days, there was loose monetary policy, the previous government turned the taps on a lot before the election. And on that side, raising interest rates will work.
2:20 – What matters is how people expect inflation to continue. Here I have a question mark over the November rate jump when the Czech National Bank assumed it would smash inflation expectations, but that didn’t happen. We must also take into account the performance of the Czech economy. However, our survey of around five hundred members shows us that the main obstacle for entrepreneurs at the moment is not access to money, but rising energy prices and a shortage of people on the work market. I personally think that the 5% should be enough, we will see how the situation evolves, now it is a question of deciding week by week, month by month.
9:45 – Should the CNB resort to monetary interventions?
I have a question mark on this. The crown would really need to be reinforced a lot to make sense. But again, this would have an impact on our exporters and could harm the Czech economy. It is a legitimate tool but it is double.
10:00 a.m. – I’m also asking you because you’re mentioned as a candidate for the next CNB governor. Has the president ever offered you this position?
I spoke to the president, but please respect that I will not comment further. It has to do with personal feelings and professional issues. Things around the central bank are very sensitive today, and that’s why I criticize some members of the Bank Board for being too open.
12:00 – Where will the price increase the most?
This will affect the socially weakest the most, government social policy will have to focus there as well. From the perspective of the President of the Chamber of Commerce, I say this will affect small and medium-sized businesses the most. Then there is the question of whether the government should intervene in the area of energy prices. If you ask from a godly standpoint, of course food or energy reacts a lot. We’ll see how rents react. However, I think the middle and upper income family will resist it. On the other hand, I am also a pensioner and now my pension has been increased and the increase is decent. I believe the government will find ways to help those who need it stabilize that year.
3:30 p.m. – What wage growth do you expect?
We have the signal that entrepreneurs are raising wages. I have numbers from the end of last week that it looks like in nominal terms it could go up by as much as ten percent. But it’s premature, it’s only the fifth week of the war. I think we will be able to make more stable estimates in May, in June.
5:00 p.m. – How do you see the growth of salaries in the state sphere? Should the government increase them or not due to high inflation?
We are one of the few countries where the average salary in the private sector is lower than the average salary in the public sector. It’s very complicated. This government is committed to reversing this trend. There must be some reaction in the public sphere as well, but the government must not allow these unhealthy scissors to open any further.
Salary increases in the public sphere should only take place if it is socially unsustainable to keep these salaries at the same level. It certainly shouldn’t be a general wage increase. Bureaucracy and civil servants have been added very solidly, they should definitely not receive any more money.
I would rather say no growth, but I want to keep at least some backdoors if the rise in inflation is such that it would be socially unbearable for some.
18:00 – And inflation at 13% estimated by the Chamber of Commerce is already unbearable?
This is still the limit where I would think of raising the maximum for the most committed professions.
20:00 – We now have to help Ukrainian refugees, mainly for humanitarian reasons, but I’m afraid the mood is changing. Migrants come to us in a structure that does not correspond to the structure of demand in our labor market. Humanitarian assistance is essential in this regard. But we’d be fools if we didn’t try to employ at least a fifth, a sixth of those people. And finally, if a substantial part of the refugees is to stay here permanently, then our humanitarian aid must quickly be put under pressure: you want to stay here, to work.
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