Why the Czech National Bank Is Unfazed by High Gas and Electricity Prices and What It Means for Your Investments

Imagine sitting at breakfast, flipping through the morning news, and once again seeing headlines about record gas and electricity prices. You recall last year's bill and a question pops into your head: "Why is no one doing anything about this? And why does the Czech National Bank act as if nothing is happening?" It's a sentiment shared by many households and businesses, and although inflationary pressures seem to be everywhere, the central bank is still waiting. But why?

The Story of Invisible Inflation: CNB's View on Energy

The current situation is complex. While energy prices, especially natural gas, are reaching historic highs on spot markets—for example, in August 2023, the price of gas on the European TTF hub was around 35–40 EUR/MWh, which is significantly less than in the crisis year of 2022 (when it approached 300 EUR/MWh), but still several times higher than the long-term average before 2021 (around 15–20 EUR/MWh)—the CNB does not seem concerned enough to take drastic measures. The key to this stance is distinguishing between so-called primary and secondary inflationary effects.

The primary effect is the direct impact of higher energy prices on consumer prices. When electricity becomes more expensive, household bills increase. That's clear. The problem arises with secondary effects. These occur when higher energy costs are reflected in the prices of practically everything else—from food to transportation to services. Companies that pay more for electricity raise their product and service prices to maintain margins. If this spiral effect takes off, inflation becomes persistent and much harder to combat.

The CNB currently believes that the primary effects are largely accounted for or that their further increase will not have such a strong secondary impact. Its attention is focused on November, when a new macroeconomic forecast will be available, providing a more comprehensive view of inflationary pressures and their structure. It will then decide whether intervention is necessary, such as raising interest rates.

Statistics and Data: Where Is Inflation Hiding?

Let's look at some numbers that illustrate why the situation is so sensitive. The average inflation in the Czech Republic in 2022 was around 15%, one of the highest figures in the European Union. Although inflation is gradually declining in 2023, it still remains above the CNB's target (2%). For example, in August 2023, year-on-year inflation was around 8.5%, with energy and food still being the biggest drivers.

An interesting comparison is with the expected value (EV) of inflation. Analysts surveyed by various financial media expect inflation to decline, but the pace of decline may slow down precisely because of energy. The median estimates for the end of 2023 are around 7%, which is still far from the target. The long-term average inflation in the Czech Republic (e.g., over the last 20 years) is approximately 2.5–3%. The current situation is therefore significantly above average.

The CNB monitors so-called core inflation, which excludes volatile items like energy and food. If core inflation starts to rise significantly, it is a clear signal that secondary effects are taking off. While overall inflation is declining, core inflation remains higher, indicating persistent pressures in the economy. For example, in August 2023, core inflation was only slightly lower than overall inflation, which is a warning sign.

Practical Framework: How to Prepare for Uncertainty?

What should you take away from this as an investor or curious layperson? The key is preparedness and diversification. Here are some practical steps:

1. Analyze Your Energy Expenses: Do you know exactly how much you pay for gas and electricity? Review your bills from the past year and create an overview. Find out if you have a fixed price or are on the spot market. This will give you an idea of your exposure to further price shocks.
2. Reassess Your Investment Portfolio with Inflation in Mind: Inflation devalues money. Do you have a sufficiently diversified portfolio that includes assets that have historically served as protection against inflation? This could be real estate, commodities, or stocks of companies with high pricing power (the ability to pass higher costs onto customers).
3. Monitor Core Inflation and CNB Comments: Instead of just watching overall inflation, focus on core inflation. Its development is crucial for the CNB. Also, follow regular press conferences and comments from board members, especially before the November forecast. This information will give you clues about the direction of monetary policy.
4. Consider Investing in Inflation-Resistant Sectors: Some sectors are naturally more resistant to inflation than others. These include, for example, the utilities sector (if regulated prices are stable), consumer staples (people buy them regardless of price), or some tech companies with high margins. Conversely, sectors with high energy demands and low pricing power may suffer.

QMA Hook: Filtering Resilient Companies

Identifying companies that can thrive in an inflationary environment can be challenging. It's necessary to analyze their margins, pricing power, debt structure, and sensitivity to input costs. In QMA, you can use our screener to filter stocks based on key financial metrics such as gross margin, operating margin, or debt-to-equity ratio, helping you find companies with robust financial structures better prepared for inflationary pressures. open in QMA

Key Takeaways

* CNB Monitors Secondary Effects: The central bank is waiting because it focuses on whether higher energy prices will spread into the broader economy through core inflation. The November forecast will be crucial for further decision-making.
* Inflation Remains High: Despite the decline in overall inflation, its level is still above the CNB's target, and core inflation indicates persistent pressures.
* Diversification and Portfolio Analysis: For investors, it is essential to have a diversified portfolio and consider investments in assets and sectors that have historically served as protection against inflation.
* Monitor Key Indicators: Instead of panicking, monitor core inflation and official CNB communication. This information will provide you with a better overview of future monetary policy developments and potential market impacts.

---

Sources and Further Reading

This topic has been followed by numerous financial media today. Factual basis and links for further reading:

• Google News · kurzy.cz
• Google News · patria.cz
• Google News · ČNB/CZ ekonomika