(Adds central banker in paras 5-7, updates crown)
By Jan Lopatka
PRAGUE, April 8 (Reuters) - Czech consumer prices dipped
unexpectedly in March, pushing the annual inflation rate down
from nine-year highs at a swifter-than-expected pace and
supporting the case for stable interest rates.
Consumer prices dropped 0.1 percent on the month on falls in
the prices of holidays, food, alcohol and tobacco, the Czech
Statistical Bureau (CSU) said on Tuesday. The data defied market
expectations of a 0.1 percent increase.
The decline put year-on-year inflation at 7.1 percent, down
from 7.5 percent the previous month [].
The figures supported an argument against further monetary
policy tightening, following 200 basis points worth of interest
rate hikes spread between late 2005 and February this year.
The central bank used three occassions on Tuesday -- two
comments by board members and a statement -- to reiterate its
message of the past months that the price spike was temporary
and inflation would fall back toward the 3 percent +/-1 point
target at the turn of 2008 and 2009.
"The results showed that the current inflation rise really
will be limited in time, that the situation will gradually calm
down and that at the beginning of next year inflation should
return toward levels very close to the inflation target," board
member Eva Zamrazilova told reporters on the sidelines of a
conference.
She added that she thought the data backed the view that
interest rates may stay on hold for some time.
Some analysts, however, pointed out that part of the drop
was attributable to food prices, which the bank excludes from
its core inflation measures.
"The central bank must further follow the development of
adjusted inflation, which shows demand-side pressures from the
economy," said Komercni Banka analyst Jiri Skop. "We believe the
central bank will raise interest rates at its May meeting."
The bank last raised its key two-week repo rate by 25 basis
points to 3.75 percent in February, but has since been torn
about its next moves.
Inflation has soared high above the bank's target as the
labour market has tightened amid strong economic growth.
The bank says that it will ease when one-off price hikes
related to government tax reform, rent, health and energy cost
rises in January drop out of the annual figures.
Unemployment dipped to 5.6 percent in March from 5.9 percent
in February, data from the Labour Ministry showed on Tuesday
[].
CONFLICTING PRESSURES
But the strong crown currency, which has gained 10.5 percent
against the euro over the past year, has made imports cheaper, a
powerful anti-inflationary factor in the small, open central
European economy.
The crown dipped after the data to 25.04 to the euro from
24.975 earlier, but climbed back to 24.99 at 1216 GMT.
The sagging outlook of the European economy is also an
anti-inflationary risk, although it has so far not hurt Czech
exports.
Central bank Vice-Governor Miroslav Singer said after the
bank's policy meeting on March 26 that risks on both the pro-
and anti-inflationary sides were unusually high, making policy
decisions difficult, and Zamrazilova also backed that view on
Tuesday.
(Reporting by Jan Lopatka; Editing by Gerrard Raven)
