Soaring energy prices contributing to high Czech inflation

Soaring energy prices are one reason the Czech Republic is currently experiencing the highest rate of inflation seen since 2008, the website iHned.cz reported.

Czech energy prices have been setting new records recently. Since the beginning of 2021 the cost of electricity has more than doubled, while gas now costs 150 percent more, iHned.cz said.

Earlier this week Prime Minister Andrej Babiš addressed the issue, telling the lower house that the government would do its utmost to ensure energy prices did not rise further.

Similar pressures are being felt elsewhere in Europe and iHned.cz said that Greece and Spain planned to protect consumers from rising energy prices. The French government is going to send EUR 100 as compensation to nearly 6 million households later this year.

High energy prices are creating inflationary pressure on virtually everything else, iHned.cz said. Czech firms are feeling the heat and passing the increases on to customers. The head of a glassworks told the news site that if it didn’t do so it would go bankrupt.

Producer prices in industry illustrate this pressure. They rose by 9.3 percent year-on-year in August – the sharpest hike seen since April 1993.

What’s more, significant inflationary pressures still lie ahead due to the rising power prices, which will only gradually translate into higher prices of other items, Czech Banking Association chief economist Jakub Seidler told iHned.cz.

A spokesperson for major food producer Agrofert said prices of wheat, energy, fuels and other key components were rising sharply, which would likely lead to price adjustments for the company’s products.

As iHned.cz writes, this means that the price of rolls and bread may go up.

Prague Energy put up the price of its electricity by seven percent at the start of September. However, said a spokesperson, it will not touch prices again this year unless something untoward occurs.

That said, other electricity suppliers will not avoid price increase, iHned.cz reported.

The director of the Association of Independent Energy Suppliers and CEO of ENA Jiří Gavor told the news site that households’ cost of living would go up significantly in the coming months.

A number of factors are behind the dramatic rise in energy prices, iHned.cz said. Demand for electricity and gas is being driven by the rapid recovery of the European economy, which is pushing prices up.

However, electricity has mainly become so expensive due to a sharp rise in the price of emission allowances this year, from around EUR 33 to around EUR 60 per tonne of carbon dioxide.

Prices are rising due to the European Commission’s ambitious plans to reduce emissions by 55 percent by the end of the decade compared to the figure recorded in 1990.

Year-on-year inflation in the Czech Republic rose to 4.1 percent in August from 3.4 percent in July, with last month’s inflation rate the highest seen since November 2008.