Czech inflation accelerated from 1.9% to 2.5% yoy in September. It thus slightly exceeded both the market consensus and our estimate, which in both cases stood at 2.4% yoy. September inflation was also higher than the Czech National Bank’s forecast (published in early August), which had expected 2.2% yoy. By contrast, annual inflation evolved in line with the CNB forecast in both July and August.

Czech inflation accelerated from 1.9% to 2.5% yoy in September. It thus slightly exceeded both the market consensus and our estimate, which in both cases stood at 2.4% yoy. September inflation was also higher than the Czech National Bank’s forecast (published in early August), which had expected 2.2% yoy. By contrast, annual inflation evolved in line with the CNB forecast in both July and August.

The main reason behind the increase in headline inflation in September was higher fuel prices. Prices at domestic petrol stations rose by 8.1% mom in September, marking their third consecutive increase. This was linked to the renewed escalation of the conflict in the Middle East, which pushed crude oil prices back towards USD 100 per barrel. Annual growth in fuel prices in Czechia accelerated from 26.3% in August to 37.4% in September, contributing 0.3-0.4pp to the rise in headline inflation, more than half of the total increase.

Electricity and gas prices for households continued to decline. In September, electricity prices fell by 0.1% mom and 10.6% yoy, with the administrative effect of transferring renewable energy payments to the state still contributing to the annual decline. Gas prices fell by 0.2% mom and 4.0% yoy. The exception remained heating prices, which increased by 0.1% mom and 1.6% yoy. Despite the significant rise in wholesale electricity and gas prices, Czech households have so far not felt the negative consequences. This may be due to a higher share of households using fixed-price energy contracts or to suppliers having secured energy purchases earlier at better prices. The still positive development of household energy prices offset higher prices in education, which rose at the start of the new school year (+4.1% mom in September). Overall, regulated price dynamics remained subdued, with these prices increasing by only 0.1% mom and remaining 1.0% lower yoy in September.

Food prices also remained on a downward trend. Prices for food and non-alcoholic beverages fell by 0.4% mom and 3.5% yoy in September. This offset the higher prices of alcohol and tobacco, which increased by 0.5% mom and 4.6% yoy. Given the severe drought, the related reduction in agricultural output this year, and higher wholesale energy and fuel prices, it is likely that the current downward trend in food prices will gradually reverse.

Core inflation accelerated from 3.0% yoy, where it had remained during the previous two months, to 3.1% yoy in September. This exceeded the upper bound of the CNB’s tolerance band, central bank’s forecast (2.9% yoy), and our estimate (3.0% yoy). According to our estimates, seasonally adjusted mom core price growth also strengthened from 0.25% in August to 0.28% in September, while its three-month annualised moving average increased to 3.3%. Services inflation accelerated from 4.5% yoy in August to 4.6% yoy in September. Although imputed rent growth remained strong on a mom basis (+0.4%), its annual pace slowed for the second consecutive month, from 5.4% to 5.1%. The gradually increasing comparison base had an impact. Annual growth in paid rents remained unchanged at 6.1% for the third consecutive month. Owing to the usual seasonality associated with the end of the summer holiday season, package holiday prices fell by 20.7% mom in September, only slightly less than last year’s decline of 21.1% mom. Nevertheless, annual price growth in the whole recreation, sport and culture category accelerated from 0.4% in August to 2.5% in September, contributing to stronger core services inflation. Annual price growth in telecommunications also strengthened markedly, rising from 2.0% to 2.9% in September. In this case, however, the main factor was the higher prices of goods, particularly mobile phones (+7.7% mom) and computers, laptops and tablets (+2.2% mom), which are also included in core inflation. This is most likely due to higher prices of electronic components amid strong global demand linked to investments in artificial intelligence. Information and communication services increased only modestly (+0.3% mom and +0.8% yoy in September). As a result, we estimate that core inflation excluding both rent components also increased, from 2.0% yoy in August to 2.2% yoy in September.

In light of the increase in core inflation and its momentum, we now expect the CNB to raise interest rates by 25bp at its upcoming November meeting. The key repo rate should therefore reach 4.0%. Although further rate hikes beyond the November meeting cannot be ruled out, we still consider the market expectation that the repo rate will rise towards 5% over the next year to be excessive.

In a press release, CEZ announced that it had received a notice from a Luxembourg court bailiff regarding two Luxembourg entities: The first is CGN (Czech Gas Networks S.à r.l.), in which CEZ holds a 55.21% stake. The second is CGNI (Czech Gas Networks Investments S.à r.l.), which is wholly controlled by CGN. CGNI wholly owns the Czech company Czech Grid Holding, a.s., which in turn owns GasNet, s. r. o., and GasNet Služby, s. r. o.

The situation relates to the Diag Human case and its claims against the Czech Republic, which amount to CZK17bn. The decisions of the Luxembourg officer only restrict the rights to dispose of the assets of CGN and CGNI.

CEZ considers the decisions to be both unlawful and vexatious. It will challenge them in court. CEZ expects the decisions to be overturned within a matter of months.

The decision relates solely to assets in Luxembourg. From a layperson’s perspective, however, it will not affect business in the Czech Republic at all. It should not restrict the companies' operations or cash flows. Diag Human has no legal claims against CEZ. Any such claims should be directed exclusively against the Czech Republic, not CEZ.

In a press release, CEZ announced that it had received a notice from a Luxembourg court bailiff regarding two Luxembourg entities: The first is CGN (Czech Gas Networks S.à r.l.), in which CEZ holds a 55.21% stake. The second is CGNI (Czech Gas Networks Investments S.à r.l.), which is wholly controlled by CGN. CGNI wholly owns the Czech company Czech Grid Holding, a.s., which in turn owns GasNet, s. r. o., and GasNet Služby, s. r. o.

The situation relates to the Diag Human case and its claims against the Czech Republic, which amount to CZK17bn. The decisions of the Luxembourg officer only restrict the rights to dispose of the assets of CGN and CGNI.

CEZ considers the decisions to be both unlawful and vexatious. It will challenge them in court. CEZ expects the decisions to be overturned within a matter of months.

The decision relates solely to assets in Luxembourg. From a layperson’s perspective, however, it will not affect business in the Czech Republic at all. It should not restrict the companies' operations or cash flows. Diag Human has no legal claims against CEZ. Any such claims should be directed exclusively against the Czech Republic, not CEZ.