The Czech Republic’s Producer Price Index (PPI) YoY has continued its downward trajectory, registering -1.20% in November 2025. This marks the third consecutive month of negative PPI growth, reflecting persistent disinflationary pressures in the industrial sector. The current reading is below the 12-month average of -0.50%, signaling subdued producer price inflation compared to the previous year. This trend aligns with broader European inflation dynamics, where easing commodity prices and supply chain normalization have weighed on input costs.

Drivers this month

• Energy prices contributed a -0.40 percentage point drag, continuing their downward influence since mid-2025.
• Manufacturing sectors saw moderate price declines, with machinery and transport equipment prices down by 1.50% YoY.
• Food processing prices stabilized but remained slightly negative at -0.20% YoY.

Policy pulse

The PPI remains well below the Czech National Bank’s inflation target of 2%, reinforcing the central bank’s cautious stance on monetary tightening. The persistent negative PPI growth suggests limited cost-push inflation, reducing immediate pressure for aggressive rate hikes.

Market lens

Following the release, the Czech koruna (CZK) weakened modestly against the euro, reflecting market expectations of a prolonged low-inflation environment. Short-term government bond yields edged down by 5 basis points, signaling investor preference for safer assets amid subdued inflation signals.

The PPI YoY reading of -1.20% fits into a broader macroeconomic context characterized by slowing industrial output and moderate GDP growth. Czech GDP growth for Q3 2025 was 1.10% YoY, down from 1.50% in Q2, while core inflation remains near 1.80%, below the central bank’s 2% target. Unemployment holds steady at 3.70%, indicating a tight labor market despite slowing producer prices.

Monetary Policy & Financial Conditions

The Czech National Bank has maintained its policy rate at 3.75% since September 2025, citing subdued inflationary pressures and external uncertainties. Financial conditions remain accommodative, with stable credit growth and moderate lending rates supporting domestic demand.

Fiscal Policy & Government Budget

Fiscal policy remains expansionary, with the government increasing infrastructure spending by 4.50% YoY in 2025 to support economic growth. The budget deficit is projected at 2.80% of GDP, slightly above the EU average but manageable given low borrowing costs.

External Shocks & Geopolitical Risks

Global commodity price volatility, particularly in energy markets, continues to influence Czech producer prices. Geopolitical tensions in Eastern Europe and supply chain disruptions remain downside risks, potentially impacting inflation and growth trajectories.

Drivers this month

• Energy sector prices: -3.20% YoY
• Manufacturing sector: -1.10% YoY
• Food processing: -0.20% YoY

Policy pulse

The sustained negative PPI growth supports the Czech National Bank’s current neutral monetary stance. Inflation expectations remain anchored, and the central bank is unlikely to tighten policy aggressively unless external shocks reverse this trend.

Market lens

Immediate reaction: The CZK depreciated 0.30% against the EUR within the first hour post-release, while 2-year government bond yields declined by 7 basis points, reflecting market repricing of inflation and growth risks.

Looking ahead, the PPI trajectory suggests continued mild disinflation in the Czech industrial sector. Three scenarios emerge:

• Bullish (20% probability): Global commodity prices stabilize or rise, pushing PPI back toward zero or slight positive growth by Q2 2026, supporting stronger inflation and growth.
• Base (60% probability): PPI remains negative but stabilizes around -1.00% to -0.50% through mid-2026, consistent with moderate inflation and steady economic growth.
• Bearish (20% probability): External shocks or renewed supply chain issues deepen PPI contraction below -1.50%, risking deflationary pressures and weaker growth.

Monetary Policy Outlook

The Czech National Bank is expected to maintain its current policy rate in the near term, monitoring inflation and growth data closely. Any sustained uptick in PPI could trigger a cautious tightening, while further declines may prolong the current neutral stance.

Risks and Opportunities

Downside risks include geopolitical tensions and commodity price shocks, while upside potential lies in stronger domestic demand and improved export conditions. Fiscal stimulus and EU recovery funds may also support industrial activity.

The November 2025 PPI YoY reading of -1.20% confirms ongoing disinflationary trends in the Czech Republic’s industrial sector. While this eases cost pressures for producers, it also signals subdued inflation that may limit monetary tightening. Policymakers face a balancing act amid external uncertainties and domestic fiscal support. Financial markets have reacted with modest risk-off moves, reflecting cautious sentiment. Monitoring PPI alongside core inflation and external developments will be critical for anticipating the Czech economy’s path in 2026.

Since 2020, the Czech Producer Price Index YoY and CEZ stock price have shown a positive correlation, particularly during periods of energy price volatility. For example, spikes in PPI due to rising energy costs in 2021 coincided with CEZ’s stock rally. Conversely, recent PPI declines have pressured CEZ shares, reflecting the company’s sensitivity to input cost trends. This relationship underscores the importance of energy prices in shaping both producer inflation and equity market performance in the Czech Republic.