Czech Central Banker Zamrazilova Warns Against Large Wage Hikes

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Czech central bank Deputy Governor Eva Zamrazilova warned that excessive wage demands would further fuel inflation, which is already the highest in three decades, and may force policy makers to resume interest rate increases.

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Zamrazilova criticized a recent government agreement on a 10% salary boost for some public sector employees, saying it could prompt calls for similar hikes in private businesses.  

“It’s a very bad signal for wage negotiations,” she said in a TV debate on Sunday, urging labor unions not to demand increases over 6%. 

Zamrazilova, who joined the rate-setting panel in July, was among the majority of board members who voted to hold rates this month and halt a year of aggressive monetary tightening. With inflation expected to peak at around 20% this year, she said the board will watch wage trends as a key factor for its policy deliberations.

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The central bank would have to “raise rates sharply further” if there is a threat of wage-price spiral, according to Zamrazilova.

Read more: Czech Central Bank Chief Sees Households Helping to Tame Prices

Surging natural gas prices are the main driver of inflation and European Union member states need to agree on a common measure to get energy costs under control, Zamrazilova said. 

She added that an EU-wide cap on energy prices is a better solution than imposing a windfall tax to finance local measures.

The government in Prague is considering imposing what it calls a “war tax” on power companies, banks and fuel producers and distributors. The tax would target extraordinary profits caused by the effects of the war in Ukraine, such as the spike in energy prices and higher interest rates.