The Prague Post Online: News: Oil costs drive 2008 price hikes

October 12th, 2008

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Oil costs drive 2008 price hikes

Ripple effects to be seen in areas of food products, heating

By Kimberly Ashton
Staff Writer, The Prague Post
January 3rd, 2008 issue

It is now likely to cost significantly more to put food on the table and heat the home, but fortunately a sizeable increase in wages should offset the rising costs.

“According to our forecast, the living expenses of an average household should increase 5.7 percent,” says David Marek, chief economist at Patria Finance, a Prague-based investment company. “On the other hand, the average wage is expected to increase 8 percent, leaving some room for improvement of real living conditions of households.”

The main reasons for the cost of living increase are the rising price of electricity (9.1 percent), natural gas (7.4 percent), public transport (15 percent), heat (13 percent), food (7 percent) and regulated rents (about 20 percent), Marek says.

Of course, predictions vary. The Czech News Agency (ČTK), for example, reports that electricity should rise an average of 8 percent, depending on the distributor.

As for natural gas, the primary causes of the increase are “the rising prices of crude oil and related products,” Radek Lucký, board of directors deputy chairman at E.ON Energie, told ČTK. “Moreover, the fee for storage increased some 30 percent, and the costs of transport and distribution 4 percent.” E.ON is the No. 2 gas and electricity distributor on the domestic market, behind RWE Transgas and ČEZ, respectively. RWE, which controls about 80 percent of the market, told ČTK it will raise its natural gas rates for households some 7.4 percent on average.

Take-home pay

Overall, Aleš Michl, a Prague analyst for the Austrian firm Raiffeisenbank, predicts the cost of living will rise about 5 percent. The good news is that he estimates wages will rise 7 percent (as opposed to Marek’s forecast of 8 percent), resulting in a 2 percent real increase in income. The bad news is that this increase is the lowest in 10 years. It will mean only about 2,000 Kč more per month, taking the average monthly income to 22,000 Kč ($12,311) nationally and about 28,000 Kč in Prague.

At the same time, Michl says, the 5 percent increase in costs is the highest inflation jump in the past decade — and twice as high as it was in 2007.

There are two main reasons for the unusually high rate of increase, he says. One is the government reforms, which are hiking value-added tax (VAT) from 5 percent to 9 percent and introducing new taxes on tobacco. The other is market demand for food — a trend being seen across Europe. Bread, for example, is expected to cost 9 percent more in the Czech Republic next year. The cost of beer and water will also rise 5 percent to 8 percent, he said.

Home heating costs will be heavily influenced by new ecological taxes, Michl says. Overall heating costs should rise 8 to 10 percent. Coal-generated heat, however, could rise as much as 20 percent, a source from the Energy Regulatory Office told ČTK.

Hardest hit by these increases will be pensioners, who spend a greater portion of their income on housing and food than does the general population, Michl says. Pensioners’ expenses will rise on average more than 8 percent.

The Prague Public Transit Company recently announced that metro and tram fares will be significantly higher next year. For example, a 24-hour ticket will rise from 80 to 100 Kč and a three-month pass from 1,260 to 1,480 Kč.

“The fare hike is, for us, one of the ways to solve the coming economic situation in 2008 — most of all the VAT increase from 5 percent to 9 percent, the increased fees for utilities (gas, electricity, water, heating) and the higher prices of fuel,” Ondřej Pečený, spokesman for the Prague Public Transit Company, told The Prague Post in November.

Car transport, at least, is one expense that isn’t expected to go up by much; record-high oil prices are expected to stabilize or even dip slightly, according to Michl. Overall transportation costs will rise about 5 percent to 7 percent, he says.

Kimberly Ashton can be reached at kashton@praguepost.com

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