The Czech economy continued its strong performance in 2007 driven by private consumption and investment, with GDP growth at 6%. Unemployment is decreasing rapidly to an overall national average of 4.9% (as of Q4 2007), and labour availability is becoming a serious issue, particularly in the capital Prague. As a consequence wages have increased by 7.6% in nominal terms and 5% in real terms in Q3 2007. The combined effect is resulting in somewhat higher inflation, reaching above 5% in the latter months of 2007. The annual inflation rate for 2007 was 2.8%. Throughout 2008, inflation is expected to increase further mainly due to the changed VAT rate that affects a wide range of consumer prices. The pace of increase of consumer spending will likely slowdown from 5.7% y-o-y in 2007.
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