INSTANT VIEW 2-Czech Oct annual CPI dips near 1-1/2-year low

    PRAGUE, Nov 8 (Reuters) - Czech consumer prices fell by a 
much sharper than forecast 0.5 percent in October from September 
on falling prices of natural gas, motor fuel and food, pushing 
annual inflation down near a 1-1/2-year low of 1.3 percent. 
    The fall from 2.7 percent a month ago brought annual 
inflation below the bottom of the central bank's target which is 
to keep price growth within a plus/minus 1 percentage point band 
around a 3 percent mid-point. 
 
KEY POINTS: 
(pct change)          Oct         Sept         Oct forecast 
 month/month         -0.5        -0.7         -0.2 
 year/year            1.3         2.7          1.6 
 
 (Details of Oct inflation data..................[ID:nPRA001018] 
 (End-Oct unemployment figures...................[ID:nPRA001019] 
 
- The annual consumer price index (CPI) lowest since May 2005, 
reflecting a 5.5 percent fall in natural gas prices for 
households, set by the energy market regulator, fell 5.5 percent 
from October, following a 17 percent jump in October 2005. 
- Fuel prices down 5.5 percent month-on-month, the second 
decline after gains in the five preceeding months. 
- Food prices, which many analysts had expected to rise or show 
only a modest drop, decline 0.7 percent, mainly on falling 
vegetable and fruit prices and lower prices for baked goods. 
- Leisure prices ease 0.8 percent on seasonal cuts in domestic 
holiday costs; healthcare prices fall 0.6 percent on seasonal 
drop in spa treatment costs. 
- Other price categories show mainly minor changes. 
 
COMMENTARY: 
    JAN VEJMELEK, ANALYST, KOMERCNI BANKA, PRAGUE 
    "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). 
    "The October reading is below the central bank's forecast, 
our first calculations point also at a decline in demand-pull 
inflation, so money market interest rates will respond with a 
drop." 
 
MARKET REACTION: 
- Crown barely changed at 28.020 per euro <EURCZK=>. Government 
debt yields and money market rates fall. 
 
BACKGROUND: 
- The central bank held the key two-week repo rate steady at 2.5 
percent <CZCBIR=ECI> in October. Five out of six wanted no rate 
change, while the remaining one voted for the hike. 
- Report on last Czech c.bank rate decision      [ID:nL26548848] 
                                                 [ID:nPRA001007] 
- 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 bank's newly-updated quarterly inflation prediction sees 
consumer prices rising 2.8-4.2 percent year-on-year in September 
2007 and 3.5-4.9 percent in March 2008. 
 
LINKS: 
- For further details on October 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       <ECONCZ> 
- 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                <CZKVIEW> 
- Czech money guide                                      <CZK/1> 
- Czech benchmark state bond prices                   <0#CZBMK=> 
- Czech forward money market rates                      <CZKFRA> 
 
 ((Writing by Marek Petrus; Editing by Alan Crosby; 
prague.newsroom@reuters.com; Reuters Messaging: 
marek.petrus.reuters.com@reuters.net; +420 224 190 477)) 
  Keywords: ECONOMY CZECH INFLATION