Capital Economics expects the Czech National Bank (CNB) to raise its policy rate by 25 basis points to 4.00% in November as inflation pressures build, Capital Economics said in a note on October 22.
The London-based consultancy expects a further 25bp hike, to 4.25%, in the first quarter of 2027, citing the central bank's hawkish stance and projections that inflation will rise further above its 2% target next year. Market pricing for rates of 4.50-4.75% next year looks "a bit aggressive", it added. The CNB held the rate at 3.75% in September.
Headline inflation has hovered around the target for most of the year but jumped to 2.5% y/y in September from 1.9% in August, driven by fuel prices. Capital Economics expects it to peak at 3.4% in the first quarter of 2027, as high oil prices keep pushing up fuel costs and the strong food deflation of recent months goes into reverse.
What worries the CNB most is core inflation, which has risen steadily for more than two years and reached 3.1% y/y in September. Services inflation, led by housing rents up 6.0% y/y, has run above 4% since 2023, above its long-run average.
Nominal wage growth has stayed firm despite a slump in productivity, pushing unit labour costs higher and raising the risk of second-round effects, and the government's plan for an 11% rise in the minimum wage next year and public-sector pay rises of 5-9% will add to the pressure, the consultancy said. Private-sector bank lending is also growing at historically high rates, driven by households, which the CNB fears may be fuelling inflation further.
Czechia is not alone in the region. Capital Economics said earlier this month that it expects Poland's central bank to deliver 50bp of tightening after Governor Adam Glapinski struck a more hawkish tone, while the Vienna Institute for International Economic Studies (wiiw) said on October 21 that central banks across Central and Eastern Europe had stopped cutting rates as energy prices pushed inflation back up.