Czech inflation declined from 2.5% yoy in September to 2.4% yoy in October. This was slightly below the market consensus of 2.5% yoy. However, it was 0.1pp higher than both our estimate and the CNB’s forecast.

Czech inflation declined from 2.5% yoy in September to 2.4% yoy in October. This was slightly below the market consensus of 2.5% yoy. However, it was 0.1pp higher than both our estimate and the CNB’s forecast.

The main reason for headline inflation being slightly higher than our forecast was the increase in food prices. In October, prices for food and non-alcoholic beverages, as well as alcohol and tobacco, all rose by 0.6% mom. We had forecast a more modest increase of 0.2% mom for the entire food category, including all beverages and tobacco. This stronger price growth may indicate the gradual impact of higher fuel costs and a weaker agricultural harvest this year due to high temperatures and severe drought conditions. Agricultural and food producer prices had already risen in September. Despite the slight mom increase, however, food and non-alcoholic beverages were still 4% cheaper yoy.

Fuel prices fell slightly, while household energy prices remained stable. On average, fuel prices were 1.5% lower mom in October, supported by a renewed reduction in excise duty on diesel. According to the Czech Statistical Office, this government measure reduced inflation by 0.09pp. However, compared with last year, fuel was still around a third more expensive. Household electricity and heating prices remained unchanged in October, while gas prices fell slightly by 0.1% mom. Household energy costs have therefore not yet been affected by the significant rise in wholesale electricity and gas prices. Regulated prices increased by 0.1% mom in October and were 0.8% lower than a year ago. This is supported by the fact that many households are on fixed-price energy contracts. This should continue to limit the impact of the energy price shock on consumer prices, even though energy suppliers have already begun to increase their prices gradually.

Core inflation remained unchanged at 3.1% yoy in October, staying slightly above the upper limit of the CNB’s tolerance band. While this was in line with our estimate, the CNB had forecast a higher figure of 3.2% yoy in October. We estimate that the seasonally adjusted month-on-month growth of core prices also remained essentially unchanged from September, standing at just under 0.3% in October. The three-month moving average then fell slightly in annualised terms, from 3.3% in September to 3.2% in October. Services inflation slowed from 4.6% to 4.5% yoy. Growth in imputed rents eased for a third consecutive month, falling from 5.1% yoy in September to 4.6% yoy in October. In addition to the weakening momentum in house prices, a higher comparison base also played a role. Conversely, paid rent growth accelerated from 6.1% to 6.4% yoy. Although core inflation remained unchanged, we estimate that it rose from 2.2% yoy in September to 2.4% yoy in October, excluding both rent components. We expect growth in core goods to gradually strengthen due to higher production and transport costs. The shortage of electronic components caused by the AI boom may also have an impact, as evidenced by September’s CPI data, which showed a significant rise in the prices of mobile phones, computers, laptops and tablets. Prices in the domestic manufacturing sector were 5.3% higher yoy in September.

The decline in annual inflation in October was probably only temporary, as we expect price growth to accelerate again in the coming months. The October fall in inflation was largely due to a higher comparison base for food prices. Last October, food prices (including all beverages and tobacco) showed an even stronger growth of 1.1% mom, although this was offset the following month by a decline of 0.9% mom.

Further rises in inflation are set to be driven by higher food, energy and fuel prices. According to our forecast, the spillover effects of the conflict in the Middle East and lower agricultural yields will gradually push up annual inflation. We expect inflation to peak at just under 4% yoy in February, before falling again. We estimate inflation to average 2.1% this year and rise to 3.0% next year.

CEZ’s net profit for 3Q26 increased by +55% yoy to CZK8.8bn, surpassing market expectations by +4.9%. However, EBITDA fell by 8% yoy to CZK27.1bn due to lower electricity prices and a loss from Trading. Due mainly to the sale of JESS, CEZ has once again increased its full-year net profit forecast.

CEZ’s net profit for 3Q26 increased by +55% yoy to CZK8.8bn, surpassing market expectations by +4.9%. However, EBITDA fell by 8% yoy to CZK27.1bn due to lower electricity prices and a loss from Trading. Due mainly to the sale of JESS, CEZ has once again increased its full-year net profit forecast.

Total revenue for 3Q26 amounted to CZK78.8bn. This represents yoy growth of +8.1%. However, EBITDA is down 7.6% yoy at CZK27.1bn. This is in line with market expectations. The decline is due to lower electricity prices. This had a particular impact on the Generation segment.  As in the previous quarter, a loss from trading (CZK-1.3bn) was also recorded due to the revaluation of derivatives. The Distribution and Mining segments grew due to higher supplies to the group. Adjusted net profit increased by +55% yoy to reach CZK8.5bn. This sharp increase is due to the absence of a special tax, resulting in a fall in the effective tax rate from 56.4% to 19.6%.

Leverage (net debt/EBITDA) increased from 1.6x to 2.0x (1H26). This was due to the dividend payment in August and acquisitions.

Dividend: The dividend policy is to pay 60-80% of net profit. Assuming an 80% payout and the new forecast for net profit, the dividend for 2026 would be CZK55 per share. In an optimistic scenario with a 100% distribution, this would be CZK69. This corresponds to a gross yield of +5.2%.

2026 Guidance: For the third time this year, CEZ has raised its FY net profit forecast. This is primarily due to the sale of a 49% stake in the Slovakian company JESS, which took place in October and generated an additional CZK2.2bn. The estimate for electricity realisation prices has also increased due to rising energy commodity prices, rising to EUR108–111MWh (previously EUR106–110MWh). CEZ is now targeting a net profit of CZK34–37bn, which is a +7.6% increase (mid) compared with the previous target of CZK31–35bn. The EBITDA forecast remains unchanged at CZK109–114bn.

The market consensus is CZK114.4bn and CZK37.6bn.

The reported results for 9M26 represent 77% and 74% of EBITDA and net profit, respectively. This is compared with CEZ’s updated targets.