INSTANT VIEW 4-Czech June PPI rises to two year high

...rate of growth in factory gate costs to hit a 
2-year high of 4.6 percent. 
    The quickening rise in the underlying inflation measure was 
likely to bolster the market's view that the central bank (CNB) 
will raise interest rates as early as July following a hike in 
May. 
    The year-on-year figure is the highest since April 2005, 
when PPI rose 5.6 percent. 
 
KEY POINTS: 
(change in percent)       June       May       June forecast 
 month/month              0.7        0.6        0.3 
 year/year                4.6        4.1        4.3 
 
 (For full table of data...........................[nPRA001398]) 
 
- The statistics office says a 4.1 percent monthly gain in coke 
and crude oil refinery costs, a 0.9 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. 
- It adds that costs for non-metal mineral goods rose 1.2 
percent on a monthly basis. 
- Separately, the statistical bureau said agriculture producer 
prices rise 1.7 percent in June from May for a 9.1 percent 
year-on-year increase, down from a 12.1 percent gain a month 
ago. 
- Costs for construction work up 0.5 percent over the previous 
month, while prices for construction materials and goods edge up 
1.0 percent. 
  
ANALYST COMMENTARY: 
    TOMAS VLK, ANALYST, PATRIA FINANCE, PRAGUE 
    "The quickening of PPI should be another clear motivator for 
the central bank to act and raise rates this month. To the end 
of the year, we expect a further acceleration of prices, annual 
PPI growth should gradually reach 5 percent." 
     
    MICHAL BROZKA, ANALYST, RAIFFEISENBANK, PRAGUE 
    "Any transfer of higher producer prices to consumer prices 
comes later and only partially, so the June PPI data are clearly 
pro-inflationary.  
    "Nonetheless, rates on the money market are already high 
enough, and the data are not a reason for any further growth (in 
rates)." 
     
    JAN VEJMELEK, HEAD OF ECONOMIC & STRATEGY RESEARCH, KOMERCNI 
BANKA, PRAGUE 
    "Growth in producer prices exceeded even our highest 
estimate, and it is a big surprise for the market. It's another 
pro-inflationary factor that indicates that a second raising of 
rates after an (expected) 25 basis point hike during the third 
quarter is a real possibility." 
     
MARKET REACTION: 
    Czech crown slightly stronger  to the euro after 
the data. Trades at 28.257 at 0723 GMT against 28.261 just prior 
to the data release. 
     
  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. 
 
- June consumer inflation                        [ID:nL11564563] 
                                                 [ID:nL11222777] 
- May industrial output figures                  [ID:nL13592187] 
- Report on last Czech c.bank rate decision      [ID:nPRG000403] 
                                 [ID:nL28398864] [ID:nL10648783] 
 
LINKS: 
- For further details on June 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 
 
- For LIVE Czech economic data releases, click on        
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- For Czech money markets data click on                 
- Czech money guide                                       
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  Keywords: CZECH ECONOMY/PRICES