Yesterday, data on Czech inflation for July were published. Year-on-year consumer price inflation accelerated faster than analysts expected. Year-on-year inflation growth in the Czech economy reached 3.4% in July after 2.8% in June. Thus, Czech inflation remains well above the Czech National Bank's 2% inflation target. At the same time, according to forecasts of some economists, the inflation rate could rise to 4% at the end of this year.
Strongly rising inflation is definitely not just a Czech phenomenon. Inflationary pressures are rising sharply throughout the global economy. Bloomberg has been calculating the average global inflation rate since 2015. Its development can be seen in the chart below. At the beginning of last year, the average global inflation rate reached a cyclical bottom of 2.0%. Since then, however, global inflation has risen sharply, partly as a result of unprecedented volumes of bond purchases by key central banks. These are the so-called quantitative easing (QE) programs, within which a huge quantity of new monetary units enters the financial system.
Currently, the average global inflation rate is 4.2%, which is a multi-year high. At the same time, the representatives of the most important central bank, the US Fed, have recently expressed the opinion that increased inflation will bother the US economy for longer than originally expected, and that the rate of inflation could rise even further. At the same time, this is a global phenomenon and we cannot therefore completely rule out the scenario of so-called global stagflation, i.e. a combination of weak economic growth and at the same time increased inflation significantly above the central banks' inflation targets, in the coming quarters. According to leading macroeconomic indicators, such as PMIs, the dynamics of the global economy now seems to be at a cyclical peak, and a significant slowdown could come from the fourth quarter of this year at the latest.
Michal Stupavský
Investment Strategist at Conseq Investment Management, a.s.