INSTANT VIEW 3-Czech May PPI rises to 2-yr high, exceeds fcast

...increase to a 2-year high of 4.1 percent. 
    The pipeline inflation pressures are likely to bolster the 
market's view that the central bank (CNB) could raise interest 
rates as early as July following the first hike in 8 months in 
May. 
 
KEY POINTS: 
(change in percent)       May        April      May forecast 
 month/month              0.6        0.6        0.4 
 year/year                4.1        3.7        3.8 
  
    Analysts polled by Reuters had forcast a 0.4 percent 
month-on-month increase in May industrial producer prices. The 
year-on-year PPI rate was forecast to be up 3.8 percent 
 . 
 
 (For full table of data...........................[nPRA001352]) 
 
- The statistics office says a 3.6 percent monthly gain in coke 
and crude oil refinery costs, a 0.8 percent rise in basic metals 
prices, and a 0.4 percent up-tick in food, beverages and tobacco 
products are the main driving forces of the monthly PPI 
increase. 
- Separately, the statistical bureau said agriculture producer 
prices rose 0.3 percent in May from April for a 12.1 percent 
year-on-year rise, down from a 12.5 percent gain a month ago. 
 
COMMENTARY: 
    PETR DUFEK, ANALYST, CSOB BANK, PRAGUE 
    "PPI is exceeding 4 percent for the first time in two years 
and we have yet another number in a series which plays in favour 
of a rise in interest rates ... This is yet another argument for 
the central bank to raise interest rates in the coming months." 
     
    RADOMIR JAC, ANALYST, PPF ASSET MANAGEMENT, PRAGUE 
    "The PPI data came in on the pro-inflationary side, which 
must be bitter news for the central bank, especially when 
combined with the current weakening of the Czech crown. 
    "The structure of the figure shows that one cannot blame 
only the volatile items such as food or oil prices for the 
increase. Higher than expected PPI, higher than expected CPI, 
more pro-inflationary structure of GDP growth, accelerating wage 
growth, a weaker crown -- there is a full list of arguments for 
the Czech central bank to increase their interest rates again 
soon. The nearest interest rate hike will be delivered most 
likely in July with the new macroeconomic forecast but, strictly 
speaking, the data would favour a rate hike as early as the June 
board meeting. Expect the two week repo rate at 3.25 percent by 
the year-end, if not higher." 
 
MARKET REACTION: 
- Crown little changed after data at 28.570 per euro , 
slightly weaker on the day. 
 
BACKGROUND: 
- Industrial PPI and agriculture producer prices are watched 
closely by the markets as leading indicators for consumer 
inflation which is targeted by the Czech central bank (CNB). 
- However, analysts have pointed out the pass-through of changes 
in production costs into overall consumer prices has been 
limited recently. 
 
- May consumer inflation                         [ID:nL08529664] 
                                                 [ID:nL08216043] 
- April industrial output figures                [ID:nL12369927] 
- Report on last Czech c.bank rate decision      [ID:nPRA001319] 
                                 [ID:nL31276683] [ID:nL31320495] 
 
LINKS: 
- For further details on May producer prices and past data, 
Reuters 3000 Xtra users can click on the statistical bureau's 
Website: 
    http://www.czso.cz/eng/csu.nsf/kalendar/2004-ipc 
 
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  Keywords: CZECH ECONOMY/PRICES