Czechs curtail shopping as crisis looms and pessimism spreads

People believe the government is doing little to prevent the decline in living standards

editor: REMIX NEWS
author: Markéta Malá
Sales at clothing and footwear retailers fell particularly dramatically. (Sam Lion/Pexels)

Dramatically high inflation and the energy crisis have taken their toll on the Czech consumer, and a substantial part of the Czech population no longer believes the situation will change for the better in the coming years. As pessimism spreads, Czechs are growing fearful of impoverishment and a drop in their standard of living. As a result, households have begun to curtail their spending.

The drop in shopping is clear in the data, with a significant decrease in sales, which is more than twice as high year-over-year. The people blame the worse economic situation on the government, which is allegedly unable to deal with rising energy costs. Sales of clothing and footwear fell particularly dramatically.

“This is consistent with surveys, according to which this year Czechs would rather give up buying new clothes than abstaining from a vacation, even a foreign one by the sea. After two years of limited, if not impossible travel, they are just so excited about a stay abroad. Therefore, they do not hesitate to spend money on it despite their fears about their financial future,” stated economist Lukáš Kovanda.

After the growth in April, retail sales fell by 6.9 percent year-over-year in May. Of this, sales for non-food items fell by 7.6 percent, for food by 6.3 percent, and for fuel by 5.2 percent. Sales for specialized clothing and footwear fell by 15.3 percent in May this year, while sporting goods stores took in 14.8 percent less.

“Household consumption is starting to react more sensitively to the rise in inflation and the drop in real incomes of most households,” said economist Jakub Seidler.

“In contrast to previous months, households have already used up their pandemic savings in May, or they were afraid of depleting it further. Consumer confidence is at its lowest level since measurements started at the beginning of the millennium. Moreover, inflation will increase further. It may already exceed the 20 percent level in July, which will further reduce consumer sales,” predicts Kovanda.

A June survey by the STEM agency showed that 82 percent of people do not believe in an early improvement of the situation regarding further price increases. Of course, there are more pessimists among people who are already in a difficult situation. On the contrary, there are more optimists among university students and people aged 18 to 29, among whom roughly a quarter expect the situation to improve. Across the board, however, the opinion that there will be no improvement dominates.

Due to the rising gas and electricity prices, over 80 percent of people started saving to a greater extent and limiting some of their spending on necessary goods. So far, only one-fifth of citizens have not been significantly affected by the increase in energy prices.

The survey also shows that people believe the government is doing little to prevent the decline in living standards. Although the voters of the leading SPOLU coalition are more conciliatory, even among those who voted for the ruling ODS party, almost half of those claim that the government of Prime Minister Petr Fiala is “not trying hard enough.”

At the same time, the government’s inaction manifests itself primarily in the direction of sharply rising energy prices. So far, the government has only come up with a so-called money-saving rate, which should help people handle their prepayments, but its exact parameters are still unknown. The billions for it will flow from the state budget. However, it is a pro-inflationary measure, which will soon be reflected in further price increases and a deepening of the budget deficit.

France and Germany set electricity prices for consumers several times lower than the current very high spot prices. Fiala recently said that the government wants to control the production of electricity in the Czech Republic, which can be interpreted as an attempt by the state to acquire a 100 percent stake in the semi-state electricity company ČEZ. The state would have to pay off the minority shareholders. However, according to Fiala, the nationalization process would take up to two years. Until then, his government will not fix electricity prices precisely because of the threat of lawsuits from minority shareholders who would lose profits from high electricity prices.

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