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Czech Government To Unveil Austerity Package, Inflation Cools Faster Than Expected

CZECHIA
  • The government will announce its fiscal consolidation package today at "five minutes to noon" (10:55BST/11:55CEST). The original aim was to trim the budget deficit by CZK70bn but the government yesterday suggested that this goal will be exceeded, albeit the final figure is unknown as of yet. Seznam Zpravy reports that on the expenditure side, most savings will be made through a reduction of state subsidies for businesses. On the revenue side, the government is expected to implement changes to the tax system, which includes replacing three VAT rates (10%, 15% and 21%) with two rates (12% and 21%), while the corporate tax rate could rise from 19% to 20% or 21%.
  • Alongside fiscal reforms, the government will unveil its proposed changes to the pension system. According to Seznam Zpravy, the fixed retirement age of 65 will be replaced with a flexible rule, whereby people will spend 21.5 years in retirement on average, depending on fresh data on life expectancy.
  • Czechia's CPI inflation for April came in slower than expected. Prices rose 12.7% Y/Y, missing the estimates of all economists in a Bloomberg poll. In addition, CPI fell 0.2% M/M in the first sequential decline in prices since October. Food prices appear to be the main factor weighing on the overall index, with "food and non-alcoholic beverages" category making up 17.8% of the consumer basket. The CNB will issue their comments on the latest CPI outturn at 12:00BST/13:00CEST.
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