Why is Sugar in Czechia the Most Expensive in the EU?

In March of this year, the price of sugar in the Czech Republic rose by 98% compared to 2022, making it the most expensive in the European Union.

Monthly data shows that this increase has been steady since August 2021, with inflation rates for February and March 2023 reaching 61%. This means that the average sugar prices in these two months were 61% higher than during the same months of the previous year.

Czechia, Estonia, Poland, Germany, and Latvia observed the highest annual inflation rates for sugar, with an increase of 98%, 97%, 82%, 72%, and 70% respectively, while substantial, though lesser, increases were also recorded in Luxembourg (19%), Belgium (35%), Bulgaria (36%), and Ireland (37%).

Hungary had the smallest increase in sugar prices by 17%. The rise in sugar prices is partly due to gas prices demanded by sugar mills during their production process.

According to Eurostat, the gas price in the Czech Republic was the highest in the EU during the latter half of the previous year, increasing by 231% YoY, while it was only by about 30% in Hungary.

A limitation on sugar prices imposed by the Hungarian government as part of its anti-inflation strategy earlier last year also played a role.

In October of last year, Czech sugar mills had to pay billions instead of millions of crowns for gas, as gas prices saw an unprecedented surge.

Czechia was less liberal than many other EU members in easing energy costs, especially for food processing companies. Besides, inflation in the Czech Republic has been significantly impacted by profit inflation.

According to UBS, the largest Swiss bank, profit inflation is an increase in company margins and profits at the expense of customers and consumers.

UBS analysts suggest that firms have been “using narratives to persuade consumers to pay more.” The narrative has been particularly compelling in the Czech Republic since Russia’s invasion of Ukraine, allowing retail chains or food producers to justify price increases based on events in Ukraine, such as the spike in energy or food costs.

The Czech consumer has readily embraced this narrative in recent months, not only in the case of sugar or petrol. All eyes will be on the Federal Reserve this Wednesday.