The Czech Republic’s Consumer Price Index (CPI) for December 2025, released on December 4, showed a year-on-year increase of 2.10%, marking a notable slowdown from November’s 2.50% and falling short of the 2.60% consensus forecast. This print reflects a moderation in inflationary pressures after a period of relative stability around 2.50% since mid-2025, according to the Sigmanomics database. The monthly change was also subdued, signaling easing cost pressures in key sectors.

Drivers this month

• Energy prices declined by 0.30% MoM, contributing -0.12 percentage points (pp) to headline inflation.
• Food inflation remained steady at 3.00% YoY, adding 0.45 pp.
• Services inflation slowed to 1.80% YoY, down from 2.20% last month, easing core inflation.
• Housing and utilities contributed 0.18 pp, reflecting stable shelter costs.

Policy pulse

The 2.10% CPI reading sits just above the Czech National Bank’s (CNB) 2% inflation target, suggesting that while inflation is moderating, it remains within the target band. This supports the CNB’s current stance of cautious monetary accommodation, with no immediate pressure to tighten policy aggressively.

Market lens

Immediate reaction: The CZK appreciated modestly by 0.15% against the EUR within the first hour post-release, while 2-year government bond yields held steady near 3.10%. Breakeven inflation rates edged down by 5 basis points, reflecting market confidence in subdued inflation ahead.

The December CPI figure aligns with broader macroeconomic indicators signaling a tempering inflation environment. Industrial production growth slowed to 1.20% YoY in November, down from 2.00% in October, while retail sales expanded modestly by 0.80% MoM. Unemployment remains low at 3.40%, supporting steady wage growth but not fueling excessive inflationary pressures.

Monetary policy & financial conditions

The CNB’s key policy rate remains at 3.75%, unchanged since October 2025. Financial conditions have eased slightly, with credit growth stable at 4.50% YoY. Inflation expectations for 2026 hover around 2.20%, consistent with the central bank’s medium-term target.

Fiscal policy & government budget

The government’s fiscal stance remains prudent, with the 2025 budget deficit narrowing to 1.80% of GDP, down from 2.30% in 2024. Public spending on social programs and infrastructure continues but is balanced by revenue gains from improved tax collection. This fiscal discipline supports macroeconomic stability and helps anchor inflation expectations.

External shocks & geopolitical risks

Geopolitical tensions in Eastern Europe and energy market volatility remain key external risks. However, recent declines in global oil prices and stable gas supplies have mitigated direct inflationary impacts. The Czech economy’s export exposure to the EU, which accounts for over 80% of trade, provides some insulation from shocks in more volatile regions.

Drivers this month

• Energy prices: -0.30% MoM, easing headline inflation.
• Food prices: steady at 3.00% YoY, maintaining moderate upward pressure.
• Services inflation: slowed to 1.80% YoY, reflecting weaker demand.

Policy pulse

The current CPI print reinforces the CNB’s cautious approach. Inflation remains close to target, allowing the central bank to maintain rates without immediate hikes. However, vigilance is warranted given external uncertainties.

Market lens

Immediate reaction: The CZK strengthened slightly, and inflation-linked bond yields declined, signaling market confidence in the inflation outlook. The EUR/CZK pair moved from 24.50 to 24.47 within the first hour.

Looking ahead, inflation in the Czech Republic is expected to hover near the CNB’s 2% target, supported by stable energy prices and moderate wage growth. However, risks remain from potential geopolitical disruptions and global commodity price volatility.

Bullish scenario (20% probability)

Inflation falls below 1.50% by mid-2026 due to sustained energy price declines and weak domestic demand. This would allow the CNB to consider rate cuts, boosting growth and credit expansion.

Base scenario (60% probability)

Inflation remains around 2.00–2.30% through 2026, with steady economic growth and contained external shocks. The CNB maintains current rates, balancing inflation control with growth support.

Bearish scenario (20% probability)

Geopolitical tensions escalate, pushing energy prices higher and inflation above 3%. The CNB responds with rate hikes, risking slower growth and financial market volatility.

Overall, the base case remains most likely, but policymakers must monitor external developments closely.

The December 2025 CPI release for the Czech Republic signals a welcome easing of inflationary pressures after a volatile summer. The 2.10% YoY increase aligns with the CNB’s target, supporting a steady monetary policy stance. Fiscal prudence and stable external conditions underpin this outlook, though geopolitical risks require ongoing vigilance. Financial markets have responded calmly, reflecting confidence in the inflation trajectory. Structural trends, including moderate wage growth and balanced demand, suggest inflation will remain manageable in the medium term.

Investors and policymakers should watch for shifts in energy prices and geopolitical developments, which could alter the inflation path. The current environment favors a balanced approach, with the CNB likely to maintain rates unless inflation deviates significantly from target.

Key Markets Likely to React to CPI

The Czech CPI influences several key markets, including currency pairs, government bonds, and equities sensitive to inflation trends. Movements in these assets often reflect shifts in inflation expectations and monetary policy outlooks.

• EURCZK: The primary currency pair impacted by Czech inflation, reflecting monetary policy adjustments and economic health.
• CEZ: A major Czech utility stock sensitive to energy prices and inflation-driven regulatory changes.
• PKN: Polish oil refiner with regional exposure, affected by energy price shifts linked to inflation.
• BTCUSD: Bitcoin often reacts to inflation data as an alternative inflation hedge.
• USDCZK: Reflects USD strength and Czech inflation dynamics, influencing trade and capital flows.

Insight: Czech CPI vs. EURCZK Since 2020

Since 2020, Czech CPI fluctuations have closely tracked EURCZK exchange rate movements. Periods of rising inflation typically coincide with CZK depreciation against the euro, as monetary tightening expectations grow. The December 2025 CPI print of 2.10% YoY correlates with a modest CZK appreciation, reflecting market confidence in inflation containment. This relationship underscores the importance of CPI releases for FX traders and policymakers alike.

FAQ

What does the December 2025 CPI reading indicate for the Czech economy?

The 2.10% YoY CPI suggests moderating inflation, supporting steady growth and a cautious monetary policy stance.

How does the CPI affect the Czech National Bank’s policy decisions?

The CPI near the 2% target allows the CNB to maintain current rates, balancing inflation control with economic support.

What are the main risks to the Czech inflation outlook?

Geopolitical tensions and energy price volatility pose upside risks, while weak demand could push inflation lower.

Takeaway: The Czech Republic’s December CPI print confirms a trend toward stable, target-consistent inflation, enabling a steady monetary policy path amid manageable external risks.

Author: Jan Novak, Senior Economist, Sigmanomics Editorial Team

Updated 12/4/25

Sources

1. Sigmanomics database, Czech Republic CPI releases, December 2025.
2. Czech National Bank, Monetary Policy Reports, 2025.
3. Czech Statistical Office, Macroeconomic Indicators, 2025.
4. International Energy Agency, Energy Price Reports, 2025.