(Bloomberg) -- The Czech economy entered a shallow recession in the fourth quarter of last year as surging energy costs and the highest interest rates in more than two decades hit households and companies.

Gross domestic product shrank 0.3% from the previous three months, the second quarterly contraction in a row, the Czech Statistics Office said on Tuesday. The drop is smaller than the 0.6% median estimate in a Bloomberg survey and compares with the central bank’s projection for a 1.3% decline. The economy rose 0.4% from a year earlier, slowing from 1.5% growth in the previous quarter. 

The quarterly decline was driven mainly by weaker household consumption, the statistics office said. It will publish more details in March. 

The country is grappling with the worst inflation in decades, which policy makers said may culminate above 18% this month. The central bank’s new leadership halted a year of rapid interest rate increases last summer and said further hikes were not worth the additional economic pain they would inflict economy. The bank forecasts another quarterly GDP decline in the first three months of the year. 

Central bankers are watching wage demands and state spending as indicators of future home-grown inflation risks. Most board members who prefer stable rates have said that weaker consumption and slowing loan growth will help return inflation to the 2% target by about mid 2024. 

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