(Adds c.bank statement in paras 7-8, updates market prices)
By Marek Petrus
PRAGUE, Nov 8 (Reuters) - Czech inflation leapt to its highest annual rate in nearly six years in October as food price growth surpassed expectations, heightening the chances of an interest rate increase this month.
The consumer price index (CPI), a broad gauge of inflation targeted by policymakers, rose 0.6 percent in October from September, the statistical bureau reported on Thursday.
That was above the 0.4 percent forecast in a Reuters poll due to a sharper-than-expected 2.3 percent rise in food prices, and compared with a 0.3 percent fall in September.
Annual inflation <CZCPIY=ECI> surged to 4.0 percent from 2.8 percent in September for the highest rate since January 2002, above the consensus forecast of 3.8 percent.
In a separate data release, unemployment declined to a new decade low in October, extending this year's fall that has fed wage inflation concerns at the central bank as robust output growth in the economy dries up the pool of available workers.
"This (inflation) number seals an interest rate increase this month," said Pavel Sobisek, economist at UniCredit Global Research.
The figure came at the top end of the central bank's (CNB) forecast of 3.6-4.0 percent. The bank's chief forecaster Tomas Holub said in a statement that this was due to higher food price rises than the forecast had envisaged.
On the other hand, he said preliminary calculations put the bank's preferred measure of core inflation -- CPI less administered prices, taxes, food prices and fuels -- slightly below the forecast. He made no comments on policy implications.
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The CNB held its key repo rate at a five-year high of 3.25 percent for a second consecutive month in October in the face of a record strong crown, but made clear that tighter policy was needed soon to contain resurgent inflation.
The crown has rallied 7 percent against the euro <EURCZK=> since hitting this year's lows in early July and is up 20 percent over a year ago versus the broadly weak dollar <CZK=>, holding down import prices.
However, analysts said the tight labour market, projections of a further rise in inflation above 5 percent early next year due to a tax hike and buoyant consumer spending would likely force the CNB's hand into tightening despite the firm crown.
End-October unemployment fell to a decade low of 5.8 percent of the workforce <CZUNR=ECI>, below the market forecast of 5.9 percent after the previous low of 6.2 percent in September.
"We expect the CNB will have to hike the base rate again on Nov. 29 to support the credibility of its commitment to maintain a low-inflationary environment at the time of negotiations on wage rise for next year," said Miroslav Plojhar, economist at JP Morgan in London.
Short-term forward-looking money market rates <CZKFRA> jumped by 8-9 basis points across the board, reflecting an increased probability of a rate hike at policymakers' next rate-setting meeting and beyond.
Economic growth is expected to top 6 percent this year for the third year running, with household consumption becoming a main growth driver and an inflation concern. Plojhar forecast further interest rate rises to 4 percent in the middle of 2008.
The crown had firmed slightly to 26.895 per euro <0#EURCZK=> by 1215 GMT from 26.950 just before the release. Medium- and long-term government debt yields <0#CZBMK=> rose by about 1-3 basis points across the board. ((prague.newsroom@reuters.com; +420 224 190 477; Reuters Messaging: marek.petrus.reuters.com@reuters.net; editing by Ruth Pitchford))
Keywords: CZECH ECONOMY/INFLATION