Czech inflation nears 1-1/2-yr low,tames rate bets

PRAGUE, Nov 8 (Reuters) - A cut in regulated gas costs pushed Czech annual inflation close to a 1-1/2-year low in October, data showed on Wednesday, leading analysts to postpone expectations of another rate rise beyond the end of this year.

The consumer price index, the closely watched inflation gauge targeted by the central bank (CNB), fell by 0.5 percent in October from September, exceeding the median forecast of a 0.2 percent drop in a Reuters poll of analysts.

Annual inflation eased to 1.3 percent, its lowest since May 2005, from 2.7 percent a month ago, data released by the statistics office showed.

Analysts said the decline was probably sharper than the CNB itself had expected, bringing the annual rate below the bottom of its rolling target, which is to keep price growth within a plus/minus 1 percentage point band around a 3 percent mid-point.

The low inflation reading, coupled with this month's 1 percent rally in the crown currency, sent debt yields and money market rates lower and prompted analysts to delay their forecasts of additional policy tightening into early next year.

"In combination with the strong crown, we can forget about any further interest rate hikes this year. This is now being postponed to the first quarter (of next year)," said Jan Vejmelek, chief analyst at Komercni Banka in Prague.

"The October reading is below the central bank's forecast, our first calculations point also at a decline in demand-pull inflation," he added.

The crown traded slightly firmer at 27.967 per euro <0#EURCZK=> by 0850 GMT, off a lifetime high of 27.875 posted on Monday but up nearly 5 percent over a year ago.

Short-dated government debt yields <0#CZBMK=> fell 5-8 basis points. Forward money-market rates <CZKFRA> shed up to 4 basis points, as investors priced out bets on a near-term tightening.

Before the data release analysts and investors were unsure whether to expect another rate hike in December, following 25-basis-point rises in July and September. These put the key rate at 2.50 percent, 75 basis points below the euro zone rate.

Separately, the Labour Ministry reported a bigger than expected drop in the October unemployment rate, to 7.4 percent of the workforce, against the 7.5 percent consensus forecast.

That is the lowest figure since the country switched to reporting jobless figures under the EU-harmonised standards. ((For INSTANT VIEW of October CPI data, click on [ID:nL08197555]))

((Reporting by Marek Petrus; editing by Gill Tudor; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477))

Keywords: ECONOMY CZECH INFLATION