(Adds central bank statement in para 12, updates market prices)
By Jan Lopatka
PRAGUE, Oct 8 (Reuters) - Czech annual inflation accelerated to a 13-month high in line with forecasts in September, keeping alive the possibility of further interest rate hikes by the end of the year.
The Czech Statistical Bureau (CSU) said on Monday consumer prices dropped 0.3 percent month-on-month, but the year-on-year index jumped to 2.8 percent from 2.4 percent in August.
The market had expected a 0.4 percent monthly fall and 2.8 percent annual rise, according to a Reuters poll.
The monthly drop came on the back of a seasonal slide in the prices of packaged holidays. But year-on-year, holiday prices edged up.
Markets showed no visible reaction to the data, with the crown inching up to 27.495 to the euro <EURCZK=> by 1120 GMT.
Analysts agreed that while there was no big surprise in the data, inflation in the fast-growing economy was bound to jump in the coming months due to base effects, tax hikes planned for January, and planned price deregulations.
Jiri Skop, an analyst at Komercni Banka, said that monetary-policy relevant inflation, which strips off the impact of indirect tax changes, has crept back up toward the central bank's July outlook from lower levels in the past months.
"We still keep our outlook for two interest rate rises, of 25 basis points each, by the end of the year toward 3.75 percent," said Skop, who is on the hawkish side among analysts.
Investors were pricing in one rate hike by the end of the year, in November, according to Reuters data based on the price quotations for forward money market rates <CZKFRA><CZDEPO=>.
The central bank (CNB) has hiked rates three times so far this year by a combined 75 basis points, to a five-year high of 3.25 percent as inflation crept up in the economy growing at a 6 percent pace annually.
FIRM CROWN HOLDS RATES IN CHECK
However, the crown's nearly 5 percent rise to the euro since July to last month's record peak, sparked by the unwinding of global carry trades and the softer interest rate environment in the euro zone, have dampened the outlook for future rate increases.
The CNB said September's figure undershot its forecast by about 0.1 percentage point mainly due to lower core inflation without fuels, but that food prices -- including the impact of a tobacco tax hike -- and fuel prices were higher than projected.
David Marek, chief analyst at Patria Finance, said: "We are still hovering below its forecast, and given how much the crown has firmed, interest rates are most likely to hold steady until the year-end."
A separate set of data from the Labour Ministry showed unemployment dropped to a new decade low of 6.2 percent in September as the fast-growing economy created new jobs, to the point of raising fears of a labour market squeeze.
The foreign trade balance showed a 0.6 billion crown ($30.74 million) deficit in August, slightly worse than a 1.1 billion surplus expected by analysts, but improved year-on-year. The year-to-date surplus of 55.1 billion doubled over a year ago. -- Additional reporting by Marek Petrus ((Reporting by Jan Lopatka, editing by Gerrard Raven; prague.newsroom@reuters.com; Reuters Messaging: jan.lopatka.reuters.com@reuters.net; +420-224 190 474)) ($1=19.52 Czech Crown)
Keywords: CZECH INFLATION/
