INSTANT VIEW 4-Czech July annual CPI slows unexpectedly

...5 percent a 
month earlier. 
**************************************************************** 
KEY POINTS: 
(pct change)          July        June         July forecast 
 month/month          0.4         0.3           0.5 
 year/year            2.3         2.5           2.6 
 
 CENTRAL BANK FORECAST: 2.5-2.6 percent annual CPI rate for July 
envisaged in its most recent projection unveiled in July. 
 
 (Details of July inflation data.................[nPRA001427] 
 (Details of July jobless data...................[nPRA001428] 
 
- The monthly rise comes on the back of a 14.1 percent seasonal 
jump in package holiday prices. 
- Regulated rents up 1.9 percent, natural gas prices up 1.6 
percent. 
- Tobacco prices gain 2.0 percent, the seventh consecutive month 
of gains following increases in tobacco excise taxes by the 
government. 
- Fuel prices rise 0.8 percent on the month, slowing the pace of 
their increase versus previous months. 
- Food prices down 0.5 percent month-on-month. 
- Apparel prices fall 2.1 percent and footwear prices drop 2.7 
percent on summer discount sales. 
 
COMMENTARY: 
    JIRI SKOP, ANALYST, KOMERCNI BANKA, PRAGUE 
    "The surprise came from a lower than expected rise in 
adjusted inflation (stripping out volatile items like fuel and 
food prices as well as tax changes and government-administered 
prices), which may to a certain extent be due to a different 
seasonal development in some price groups than in last July. 
    "Still, we believe that a rate increase at the August 
(central bank) meeting is likely. We then expect another rate 
rise before the year-end, to 3.5 percent in October." 
 
    MICHAL BROZKA, ANALYST, RAIFFEISENBANK, PRAGUE: 
    "Inflation is surprising on the downside. The decline is due 
to seasonal discounts of clothing and a drop in food prices. 
However, food prices still have room to rise because of global 
developments. The CNB will thus likely continue raising interest 
rates, even though July inflation came in below its forecast." 
     
    DAVID MAREK, CHIEF ANALYST, PATRIA FINANCE, PRAGUE: 
    "The Czech financial market had had a dilemma as to whether 
to expect one or two more rate hikes this year. The number seems 
to suggest that only one additional rate hike is likely this 
year, and it does not have to come immediately after the most 
recent increase (in July). 
    "So it seems expectations may shift in favour of a 25 basis 
point rate increase in October, and not earlier." 
 
MARKET REACTION: 
- Crown slips as high as 28.185 per euro  but claws its 
way back to 28.160 by 0725 GMT, little changed from 28.155 just 
before the release. Debt yields and money market rates flat to 
slightly lower. 
 
BACKGROUND: 
- The central bank increased the key two-week repo rate by 25 
basis points to 3.00 percent  in July. 
- Report on last Czech c.bank rate decision      [ID:nPRA001407] 
 [ID:nPRA001420] [ID:nL03817639] [ID:nL26800751] [ID:nL03732730] 
- 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 
3.5-4.9 percent year-on-year in June 2008 and 3.5-4.9 percent in 
December 2008, consumer inflation net of impact of indirect tax 
changes rising 2.6-4.0 percent year-on-year in June 2008 and 
3.0-4.4 percent in December 2008. 
 
LINKS: 
- For further details on July 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                       
 
 

[PRAGUE/Reuters/Finance.cz]