Czech inflation declined from 2.9% to 2.7% yoy in July. This was in line with both our forecast and the market consensus. The structure of price developments was also broadly in line with our forecast. However, the Czech National Bank had expected inflation to be slightly higher at 2.8% yoy in July.

Czech inflation declined from 2.9% to 2.7% yoy in July. This was in line with both our forecast and the market consensus. The structure of price developments was also broadly in line with our forecast. However, the Czech National Bank had expected inflation to be slightly higher at 2.8% yoy in July.

Food prices were lower mom. While the price of food and non-alcoholic beverages fell by 0.7% mom in July, supported by seasonal effects, the price of alcoholic beverages and tobacco rose slightly by 0.2% mom. As a result, annual growth in food and non-alcoholic beverage prices slowed from 6.2% to 5.2%, partly due to the higher base of 2H24. Food was the main factor behind the 0.2pp slowdown in headline inflation in July.

Core inflation also slowed. It fell from 3.0% yoy in June to 2.7% yoy in July, which was lower than we and the central bank had expected (2.8% yoy in both cases). In seasonally adjusted mom terms, we estimate that core inflation rose slightly from 0.1% to 0.2%, with the low figure for June only temporarily offsetting the strong growth seen in previous months. Annual growth in services prices also slowed, falling from 5.0% to 4.8%. Services prices remained the main driver of elevated core inflation, with rapidly rising housing costs due to strong property price growth being a significant factor. However, mom growth in imputed rents weakened for the second consecutive month, decreasing from 0.5% in June to 0.4% in July. Coupled with the effect of a higher comparative base, annual imputed rent growth remained unchanged at 4.9%. Growth in paid rents eased from 6.3% to 5.6% yoy, with the mom increase of 0.6% in July being weak by recent standards. However, this was offset by the relatively strong mom rise in June. High services inflation continued to be offset by subdued growth in goods prices, which slowed from 1.6% to 1.4% yoy in July. Excluding food prices, this growth would have been even lower.

Fuel prices continued to rise, while regulated prices fell slightly. In July, fuel prices increased by 1.7% mom, following a 1.0% rise in June. This was due to the gradual passthrough of higher oil prices, which increased towards the end of June. Nevertheless, fuel prices were still 9% lower than a year ago. Regulated prices declined by 0.1% mom, reflecting the continued gradual fall in household energy prices (by an average of 0.2% mom).

Both headline and core inflation are likely to have peaked in June and we expect them to trend downwards over the rest of the year. We forecast headline inflation to gradually decline back to close to the 2% central bank target by the end of the year. This should be helped by a slowdown in annual food price growth, given the higher base of 2H24. We estimate headline inflation to average 2.4% in 2025, the same as last year’s average. We also expect core inflation to slow over the rest of the year, but to remain above 2.5% yoy, averaging 2.7% in 2025. Next year, we expect headline inflation to reach 1.9%, with core inflation at 2.0%. Return of inflation to the 2% target should be driven by the effects of tight monetary conditions, cheaper energy and fuels, and the weakening of the economy and labour market. Furthermore, we do not expect annual growth in imputed rents to accelerate significantly further. For more details, see our recently published Czech Economic Outlook: https://bit.ly/CEO_3Q25_EN.

CEZ reported an increase in EBITDA of +7.2% yoy to CZK30.9bn for 2Q25, surpassing market expectations by +2.1%. This growth was driven by the Distribution and Sales segment. Net profit declined by 47% yoy to CZK4.0bn due to an increase in D&A. The extremely high effective tax rate caused the net profit to be 27% below consensus. However, due to lower operating and commodity costs and higher realized electricity prices, CEZ raised its full-year guidance for both EBITDA and the bottom line. We consider the reported figures to be strong and expect market consensus to increase.

CEZ reported an increase in EBITDA of +7.2% yoy to CZK30.9bn for 2Q25, surpassing market expectations by +2.1%. This growth was driven by the Distribution and Sales segment. Net profit declined by 47% yoy to CZK4.0bn due to an increase in D&A. The extremely high effective tax rate caused the net profit to be 27% below consensus. However, due to lower operating and commodity costs and higher realized electricity prices, CEZ raised its full-year guidance for both EBITDA and the bottom line. We consider the reported figures to be strong and expect market consensus to increase.

Revenues for 2Q25 reached CZK74.2bn, remaining almost unchanged yoy (-0.2% yoy). EBITDA increased by +7.2% yoy, reaching CZK30.9bn. The margin increased by 2.9pps to 41.7% due to lower commodity costs. The production segment decreased by 14% yoy due to trading, which experienced a temporary revaluation of derivatives and lower realized electricity prices. This quarter's results were driven by the Distribution and Sales segment. Distribution grew by 73% yoy following the consolidation of the acquired GasNet, boosted by growth in both gas and electricity volumes due to colder weather. Sales increased by 141% yoy due to lower commodity prices and higher sales resulting from colder weather. Adjusted net profit was CZK4.0bn, marking a 47% yoy decline. Net profit was primarily impacted by the substantial effective tax rate, which reached 74% in the 2Q25. This is the main reason why net profit is below market estimates (-27%). Net profit is also lower yoy due to increased D&A from the integration of GasNet into the consolidation group, as well as higher depreciation of coal-fired power plants.

Leverage (net debt to EBITDA) remained at 1.3x, unchanged from the first quarter. This is down from 1.5x at the end of 2024.

2025 Guidance: CEZ management has increased its full-year EBITDA and net profit projections. EBITDA is now expected to reach CZK132-137bn (previously CZK127-132bn), and net profit is expected to reach CZK26-30bn (previously CZK25-29bn). These figures represent increases of +3.9% and +3.7% for EBITDA and net profit, respectively. The new net profit target indicates a dividend of up to CZK 44.50 (an 80% payout and the upper end of the full-year target), corresponding to a gross yield of 3.6%.