I asked Petr Barton for an interview as soon as I read his LinkedIn post with the latest inflation figures from the Czech Statistics Office (CSU). Natland’s chief economist wrote: “The number for today is 2.3%. We’ve started to get richer again. Wages are rising faster than prices. [2.3%] is the pace that real annual wages have risen through July of this year. Even though CSU claims they fell by -3.1%.”
What’s really going on with inflation? Obviously, the crew over at the Czech stats office aren’t paid to spew out fake news. Technically, they’re right, admits Barton: The cumulative effect of the last 12 months of inflation in the Czech Republic is that prices are 8.5% higher now than they were in September 2022.
Barton’s point is that most of that inflation occurred between last September and January. “If you look at annual inflation over the last six months it’s just over 3%,” says Barton. The numbers really are vastly different this year than they were in 2022. Month to month from March to July last year, prices rose 1.7% (February 2022), 1.8% (March), 1.8% (April), 1.6% (May), and 1.3% (June). At their peak, these were equivalent to 24% annual inflation. Compare them to the same period this year: 0.1%, -0.2%, 0.3%, 0.3%.
Barton says these details matters a lot to different groups. For example, union leaders are currently fighting employers and the government for higher wages. How can their members accept a measly 4% pay rise if inflation is 8.5%? On the other hand, economists would argue that prior to Covid, wages had been rising faster than inflation, faster than GDP, and faster than productivity.
Then there’s the Czech Central Bank, which is nervous about reducing interest rates, fearing that that inflation really will take off again.
“The current 8.5% figure includes the last 4 months of 2022. We already know it was high last year. No one’s arguing about that. But it’s a different story if you say now, inflation is just 3.6%. The best predictor of tomorrow is today.”
For Barton, the significant thing that happened beginning this spring is that Czechs stopped getting poorer as a result of the inflation crisis. “Pre-Covid, real wages were generally rising by 4-5% per year. Now they’ve started rising again, but by a lot less than they used to. In fact, real wages have been rising for the past 200 years with an occasional blip. We just saw one of those blips. It lasted about one year when they fell. Historically, it’s usually nine steps forwards, one step back.”
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