Czech consumer price index: how it is measured and why it feels wrong

Each month the Czech Statistical Office announces that prices are higher than a year ago by a certain percentage, and each month someone in a Prague café says that their own bills rose far more. Both can be true. The consumer price index is a deliberately abstract number, built to answer one question: how much more would the same basket of goods and services cost today as it did a year ago? Whether the basket resembles your life is a separate matter.

This is an explainer on the method, not on current inflation. The latest figures are always on the Statistical Office website.

What the index is for

The consumer price index (CPI, in Czech index spotřebitelských cen) is the headline measure of inflation. Governments use it to index pensions and some benefits. Landlords and suppliers write it into contracts. Employers and unions refer to it in wage talks. And the Czech National Bank uses it as the yardstick for its inflation target, as our piece on inflation targeting explains. A number that carries that much weight needs a rigorous method, and the Statistical Office follows international standards.

The basket

The first building block is the basket: a list of the goods and services that households typically buy. It is grouped into about a dozen main divisions following an international classification of consumption: food and non-alcoholic drinks, alcohol and tobacco, clothing, housing and energy, furnishings, health, transport, communication, recreation and culture, education, restaurants and hotels, and miscellaneous goods and services.

Within each division sit hundreds of representative items, such as a loaf of bread of a certain type, a litre of petrol, a haircut or a monthly mobile plan. The aim is not to list everything people buy but to choose items that stand for a wider group, then track their price over time.

The weights

Each division and item gets a weight reflecting its share of average household spending. If households spend a larger share of their budget on housing and energy than on clothing, a price change in energy moves the index more. The weights come from household budget surveys and national accounts data and are updated every year, so the index stays in touch with changing habits. The Statistical Office publishes the weights.

This is why a change in energy prices has a huge effect on the headline in some years, and why the index can underplay or overplay your own experience. If you rent a flat in Prague and eat out often, your personal weights differ from those of an average household in a small town that owns its home.

Collecting prices

Price collectors and, increasingly, automated sources gather prices throughout the month, from shops, online sellers, service providers and administrative data for regulated prices. The same item, or as near as can be found, is tracked from month to month in the same sampling points. When a product disappears, a replacement is chosen, and the statisticians adjust for differences in quality, so that a better phone at a higher price is not counted as pure inflation.

Quality adjustment is the most technical part of the process and the source of many public doubts. A new model of a car or computer may be more efficient, and a fair index must separate the price of the extra quality from a bare price rise. Different methods exist, and each has critics.

From prices to the index

The calculation combines the price changes of all items, weighted by their importance, into an index with a base period set at 100. The monthly index compares the current level with the base. The figure that makes headlines is the year-on-year change: the percentage by which the index is higher than twelve months ago. A month-on-month figure is also published and is more volatile.

The Czech index is constructed as a chain: weights are updated regularly, and the new series is linked to the old, so changes in spending patterns feed through without breaking the series. This makes it a reasonable guide to the typical household's cost of living, though it assumes people keep buying roughly the same things as prices change.

Why your inflation differs from the headline

Household circumstances vary. A pensioner spends more of their income on food, energy and healthcare, which can rise faster than the average. A young renter in Prague faces housing costs that depend on the local market and are not fully represented in a national average. Households with children, or with long commutes, carry different burdens. The Statistical Office publishes breakdowns by household type, which is worth reading if you want to compare yourself with a group.

There are also things the index leaves out by design. Buying a home is treated as an investment, not consumption, and so does not appear as a price rise in the same way as rent. Interest on loans is not a consumer price either. So a sharp rise in the cost of borrowing hits household budgets without moving the CPI directly, although the CNB reacts to it through its policy.

Another reason the headline can feel wrong is that people notice price rises more than falls, and notice frequent purchases, such as groceries and fuel, more than rare ones. The index weights everything by how much people spend, not by how visible the price is.

Regulated prices and taxes

A part of the basket comprises prices set or influenced by the state: regulated energy tariffs, public transport fares, some health charges. Changes in indirect taxes, notably VAT, shift the index too. For this reason the CNB also looks at a measure that excludes the first-round effect of tax changes. When you read about a one-off jump caused by a change in VAT rates or a tariff, this is what is going on. Our explainer on Czech VAT rates shows which goods fall into which category.

How to read the monthly release

Start with the headline year-on-year number. Then look at the divisions that contributed most: the release lists them. Compare with the month before. Note whether the Statistical Office describes the change as driven by food, energy, housing or services. Finally, read the CNB's comment on whether the result was in line with its forecast. Treat a single month with caution, because one-off factors can distort it.

The Office occasionally revises its method, replaces the base year or changes the classification, and when it does it explains this in the release. Older comparisons made with a different base need care.

Frequently asked questions

Who calculates Czech inflation?

The Czech Statistical Office, from price data collected across the country and from spending weights that are updated regularly.

Why is my own inflation different from the headline?

The index reflects the average household. Renters, pensioners and families spend their money differently from the average.

Does the index include housing costs?

It includes rents and housing-related services and energy, but the purchase of a home is treated as an investment, not as consumption.

What is the difference between CPI and HICP?

The national CPI is for domestic use and the CNB target. The harmonised index is built to a common EU method so that countries can be compared.