UPDATE 1-Czech CPI matches 9-month high, rate hike on cards

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By Marek Petrus

PRAGUE, July 11 (Reuters) - Czech consumer inflation inched up in line with forecasts in June to match a nine-month high, boosting the crown currency and cementing expectations that the European Union's lowest interest rates will rise this month.

The consumer price index (CPI), a broad gauge of inflation targeted by the Czech central bank (CNB), rose 0.3 percent in June from May , met the median forecast of 14 analysts in a Reuters poll.

The monthly gain brought the annual inflation rate to 2.5 percent, from 2.4 percent in May, according to Wednesday's release by the Statistics Office. It matched April's level, which was the highest since September 2006.

"The June result fully supports the case for further interest rate hikes: a 25 basis point hike to 3.0 percent at the July board meeting is a done deal and at least one more rate hike will follow in the rest of the year," said Radomir Jac, chief analyst at PPF Asset Management.

The CNB said the June figure overshot its forecast of 1.8-2.2 percent mainly because of higher fuel prices and a quicker than expected pass-through of hikes in indirect taxes.

Tomas Holub, head of the monetary and statistics department at the CNB, said inflation adjusted for tax changes and regulated, food and fuel prices -- more relevant for policy -- was accelerating roughly in line with the CNB's forecast.

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The CNB has a 3 percent inflation target, with a tolerance band of 1 percentage point either side.

"For the coming months we expect annual CPI to gradually rise above the current level and shoot up above the 3 percent target in the autumn," said Petr Dufek, analyst at CSOB bank.

Markets have been bracing for a rise in interest rates to a near 5-year high of 3 percent when policymakers meet on July 26, following a quarter point rise in the main rate in May to offset budding inflation pressure in the strong economy.

Tuesday's release of minutes from the CNB's June 28 meeting showed rate-setters saw the risks skewed towards faster price growth than the 3.2-4.2 percent envisaged for end-2007 in the April forecast -- confirming room for rate hikes.

Expectations of imminent policy tightening helped push the crown to one-month highs. It was up 0.4 percent on the day at 28.464 per euro by 1130 GMT.

The currency's rise also reflected buying by investors unwinding so-called carry trades, in which they previously sold the low-yield crown to lock in higher yields in other markets.

Separately, a Labour Ministry report showed the jobless rate dipped to 6.3 percent of workforce in June -- a new long-term low -- from May's 6.4 percent.

The figure was also in line with market forecasts but analysts said it could fan central bank concerns about rising wage pressures amid reports that companies are struggling to keep or hire workers amidst booming demand.