A policy-driven spike in inflation in the first half of 2008 is going to temporarily dent otherwise healthy economic conditions, and real GDP growth will dip below potential as the increases in indirect taxation and administered prices squeeze consumption. Underlying inflation is low, but is creeping up and further tightening of monetary conditions is expected.
The upcoming spike in inflation is due to increases in indirect taxation and regulated prices contained in a package of fiscal and structural-reform measures voted by parliament in September. The ambitious plans for further structural reform should be pushed forward, but the weak political mandate of the ruling coalition government means that progress may be slow.
©OECD Observer No. 264/265, December 2007-January 2008
• OECD Economic Outlook No. 82, December 2007
• Visit www.oecd.org/czech
• All OECD Observer articles on the Czech Republic
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