INSTANT VIEW 3-Czech May CPI lags forecast with 2.4 pct rise

...inflation rate to ease to 2.4 percent from an 
7-month high of 2.5 percent a month earlier. 
 
KEY POINTS: 
(pct change)          May         April         May forecast 
 month/month          0.4         0.7           0.5 
 year/year            2.4         2.5           2.5 
 
 CENTRAL BANK FORECAST. 1.8-2.0 percent annual CPI rate for May 
envisaged by its most recent projection unveiled in April. 
 
 (Details of May inflation data..................[ID:nPRA001338] 
 (Details of May jobless data....................[ID:nL08528496] 
 
- The monthly rise comes on the back of a 4.3 percent rise in 
fuel costs, the third consecutive month of gains. 
- Tobacco prices up 2.6 percent, largely because of the delayed 
impact of a sales tax hike. 
- Food prices down 0.2 percent. 
- Regulated rents up 2.0 percent. 
 
COMMENTARY: 
    JAN VEJMELEK, HEAD OF ECONOMICS AND STRATEGY RESEARCH, 
KOMERCNI BANKA, PRAGUE 
    "Nothing has changed the fact that inflation is 
substantially higher than the CNB had anticipated in its April 
forecast. The deviation of the reality from the forecast has 
deepened to 0.5 basis points. 
    "Because both macroeconomic data and the crown's exchange 
rate look rather pro-inflationary, the July forecast of CNB 
should be consistent with a rise in interest rates. Therefore, 
we expect a 25 basis points hike already at the July meeting." 
     
    RADOMIR JAC, CHIEF ECONOMIST, PPF ASSET MANAGEMENT, PRAGUE 
    "No big surprise as both the headline figure and its 
structure are close to expectations. Food prices served as an 
anti-inflationary factor in May but we read this just as 
volatility.  
    "There is no surprise at all to see a further increase in 
prices of cigarettes, regulated rents and automotive fuels. The 
fact that disinflation in the apparel group is diminishing 
should serve as a signal to the central bank that the strong 
consumption demand is starting to feed through to inflation. We 
think annual inflation may test even 4.0 percent by year-end." 
 
MARKET REACTION: 
- Crown touch weaker at 28.475 per euro  by 0725 GMT 
from 28.440 just before the data. 
- Debt yields slightly higher on the day. Forward-looking money 
market rates  gain by up to 2 basis points. 
 
BACKGROUND: 
- The central bank increased the key two-week repo rate by 25 
basis points to 2.75 percent  last month. Three out 
of six policymakers voted for the hike, while the remaining 
three wanted no rate change. 
- Report on last Czech c.bank rate decision      [ID:nPRA001319] 
                                 [ID:nL31276683] [ID:nL31320495] 
- The central bank (CNB) targets headline inflation which it 
seeks to keep at 3 percent year-on-year, allowing for 
fluctuations by plus/minus one percentage point from this level. 
- The CNB's quarterly prediction sees consumer prices rising 
3.2-4.2 percent year-on-year in December 2007 and 2.7-4.1 
percent in December 2008, consumer inflation net of impact of 
indirect tax changes rising 2.1-3.5 percent year-on-year in 
March 2008 and 2.2-3.6 percent in September 2008. 
 
LINKS: 
- For further details on May other past inflation data, Reuters 
3000 Xtra users can click on the Czech Statistical Bureau's 
website: 
    http://www.czso.cz/eng/csu.nsf/kalendar/2004-ISC 
 
- For LIVE Czech economic data releases, click on        
- Instant Views on other Czech data                 [CZ/INSTANT] 
- Overview of Czech macroeconomic indicators            [CZ/ECI] 
 
- Key data releases in central Europe    [CEE-CONVERGENCE-WATCH] 
- For Czech money markets data click on                 
- Czech money guide                                       
- Czech benchmark state bond prices                    
- Czech forward money market rates                       
 
  
  Keywords: CZECH ECONOMY/INFLATION