The rise of inflation, along with interest rates, is gaining momentum. Each of us feels the increasing prices of goods and services firsthand. Most acutely affected are probably those who want to purchase their own property.

What practical impact will these trends have?

Inflation in August climbed to 4.1%, the highest level since the crisis year 2008, when it reached 7.5%. Many will surely remember the 1990s, which were strongly inflationary, with values often exceeding 10%. However, the present situation could be similarly pivotal.

The pandemic reinforced the trend toward partial deglobalization, emphasizing domestic and local resources and self-sufficiency. The linear expectation of globalization and wealth growth has proven naïve. Significant disruptions in supply chains, lockdowns, and state restrictions have led to supply shortages, while massive financial support for households and businesses from the state contributed to cash accumulation in accounts.

Add to this years of quantitative easing and the negligible interest on standard bank deposits due to low base rates, and we create exceptionally favorable conditions for inflation—overall price increases, rising costs, and the ongoing devaluation of everyone’s money.

But the situation is different from the past

Especially due to the political project of “greening” the economy. Greater state intervention, regulation, suppression of market mechanisms, the increasing role of the state (and central banks) in the economy through bond purchases, and radical green transformation all suggest a paradigm shift, potentially accompanied by long-term high inflation.

Why? High inflation might be one of the few tools capable of significantly reducing massive state debt. A positive signal is the Czech National Bank’s decision to raise rates despite government opposition.

However, for those of us who want to purchase a home, this step has a negative impact. Why?

Let’s illustrate with an example of rates

In early October: 2.39% / 5.5 million = monthly payment 20,640 CZK (€826)

In Q1, we expect a rate of 4% / 5.5 million = monthly payment 25,303 CZK (€1,012)

Income?

At the beginning of October, for an average mortgage of 5.3 million = income required 41,280 CZK (€1,651). Just a week later, you already needed 44,632 CZK (€1,785). And it is quite possible that in a few months, for the same mortgage, you will have to prepare for over 50,000 CZK (€2,000).

You may now think that properties and mortgages seem expensive. But in a year, the situation will be even less favorable—unless you expect to earn tens of thousands of CZK (≈ hundreds of EUR) more per month. For most of us, purchasing property will remain increasingly difficult in the near future. For most of us, purchasing property will remain increasingly difficult in the near future. For most of us, purchasing property will remain increasingly difficult in the near future.