The expansion has faltered as household consumption was damped by higher indirect taxes and surging inflation, which has been above Ceska Narodni Banka's ceiling since November. Inflation has been driven by global increases in food and fuel costs and government measures that are beyond the bank's influence.
The increase of economic performance was partially connected also with higher employment. According to an estimate that used the results of the labour force sample survey in combination with currently available administrative data, seasonally adjusted total employment in Q1 2008 increased by 0.3% quarter-on-quarter and by 1.7% year-on-year. NSA employment was by 1.9% higher year-on-year.
A third of the increase of economic performance was due to higher employment; the remaining two thirds are attributable to the growth of total labour productivity. The trend of certain price segments varied considerably – a marked seven per cent price growth of household expenditure on the one hand, and by 1.3 p.p. higher decrease of export prices than of import prices on the other. These and other impacts partially compensated one for another so that the overall price level measured by GDP deflator increased by three per cent.
The decreasing effect of domestic demand on GDP growth, along with an appreciating koruna, has added to the central bank's optimism that the inflation rate will slide back to the mid-point 3 percent target by next year, from 6.8 percent in April. A strong koruna, which has gained 6.1 percent against the euro this year, has helped temper rising prices
Consumer prices grew more than 7 percent in each of the first three months of 2007 and a close to a decade high of 7.5 percent in February. Rising prices prompted the central bank to raise its benchmark two-week repurchase rate to 3.75 percent in February, the fifth increase since May 2007.
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