On January 24, 2022, an employee at Madeta dairy factory in the city of Plana nad Luznici, Czech Republic. PRAGUE BUDAPEST, Jan 25 Reuters -- Czech Foundry Benes a Lat has seen its energy bill double in the past year and its finance director is trying to get client contracts rewritten so it can pass on some of the burden.
The family firm's challenge is mirrored in thousands of companies in central Europe, big and small, struggling with soaring costs for everything from parts, materials and transport to energy and growing wage demands.
We are an energy-consuming firm, so it's had a huge impact, said Jan Lat, Chief Financial Officer of Benes a Lat.
Customers are in negotiations to get energy prices back into contracts to follow market prices. This feeds into consumer inflation and adds to a price spike in central Europe that has been stronger than elsewhere in the continent due to the region's consumer-driven recoveries and ultra-tight labour markets. The extent to which companies can lift prices at the beginning of 2022 can help determine where inflation will peak and how much more central banks in the region need to tighten policy, analysts say. There is a danger that inflation will be stronger than anticipated.
According to Michal Brozka, a Komercni Banka economist in Prague, companies are trying to shift higher costs partially to customers.
Central European firms ended up in 2021 on a bullish note, with business sentiment surveys improving, while consumer demand has stayed strong. The region is facing the same inflationary pressures as others, but is also battling strong wage growth with unemployment rates among the lowest in the EU.
The Czech National Bank said that inflation will be higher than anticipated this month, likely rising above 9% at the beginning of 2022 with a chance of going past 10%.
Policymakers have raised interest rates significantly, unlike the European Central Bank which has tried to look past the price spike in the euro zone.
The soaring costs are felt by goods producers across central Europe, as a result of energy prices.
A 20% hike in the minimum wage by the government before the April 3 election showed that small and medium-sized businesses expect a 15% increase in costs in 2022, according to a survey by the Hungarian GKI Institute in December.
According to the Czech Industry Confederation, one in five firms is expected to raise prices by at least 10% and 38% will raise prices by 5 -- 10%.
The Czech dairy group Madeta raised prices on its products by 10% or more this month.
As much as we can, we are trying to pass higher costs for energy, packaging materials and other inputs into output prices. Madeta director Milan Teply said there was no other way.
Suzuki is passing some of its higher costs onto customers in Hungary. The company told Reuters that they are doing their best to optimize their costs but they will have to build a part of the rise in prices.
Capital Economics said last week that inflation is likely to remain high or fall back toward targets more slowly than expected in the Czech Republic, Hungary and Poland.
Hungarian rate setters meet on Tuesday, and analysts believe that the base rate will increase another 30 basis points to a nearly eight-year high of 2.7% to tackle inflation at a 14 year peak of 7.4%.
The average inflation this year is expected to climb to 5.5% this year, the highest since 2012 and 65 basis points above the forecasts from a month earlier in the year.
The National Bank of Poland, battling inflation that is already at a more than two-decade high of 8.6%, has lifted its main rate by 215 basis points to 2.25% since October.
Grzegorz Maliszewski, chief economist at Bank Millennium in Warsaw, said companies can pass on higher input prices while consumer demand remains strong.
He said Poland's main interest rate could climb to 4% this year.
In the Czech Republic, producer prices grew at their fastest pace last year since 1995.
Markets believe that the central bank will hike its main rate by another 50 basis points in February, after 300 basis points of rises between September and December. Analysts think the rate could peak this year close to 5%.
The input cost increases are so broad. The pass-through to consumer prices is unavoidable, said Jakub Seidler, chief economist with the Czech Banking Association.
The pass-through will be higher than we have seen in previous years.