* WHAT: Czech May inflation seen at 0.4 pct m/m, 6.8 pct y/y
* WHEN: June 9
* Slow drop in inflation from nine-year hikes speaks in
favour of flat interest rates, but risk still on the upside
By Jan Lopatka and Mirka Krufova
PRAGUE, June 2 (Reuters) - Czech consumer prices probably
rose 0.4 percent in May on fuel and food prices and tax hikes,
keeping annual inflation on a slow path down from where it has
climbed high above the central bank's target, a survey showed on
Monday.
The Reuters poll of 12 analysts <CZ/ECON04> showed the
market expected May year-on-year inflation of 6.8 percent, flat
from the previous month and slightly down from nine-year highs
of 7.5 percent in January and February.
Czech inflation has jumped more than in other central
European countries after sales and excise tax hikes in January,
but the firming crown currency has helped keep interest rates
below the euro zone.
The poll saw a recovery in industrial output and retail
sales in April following poor figures for March, but analysts
said the economy was cooling down as demand faltered abroad and
the strong currency squeezed exporters' margins.
The inflation reading would not likely change the outlook
for flat interest rates if the rise came mainly from fuels,
which are outside the scope of monetary policy, said Citibank
economist Jaromir Sindel.
"We do not expect strong monetary policy implications, if
our forecast materialises, as the May inflation is likely to
reflect mainly an increase in fuel prices," he said.
"However, we do not expect the CNB (central bank) to
decrease its interest rate in 2008. Moreover, we see an upside
risk to our forecast of stable rates in the second and third
quarters, as we feel the labour market is an inflationary
factor."
The central bank has raised interest rates <CZRP=>
<CZCBIR=ECI> five times to 3.75 percent over the past year but
has paused since February. Many analysts believe the next move
will be down, as inflation forecasts show a drop in price growth
in early 2009.
But a number of analysts believe the bank may once more hike
rates over the summer before it reaches the top of the cycle.
"We feel that the move back to the CNB's target range (3
percent +/- 1 percentage point) will be a far slower and
precarious journey than the bank is expecting," said Lauren van
Biljon of 4castweb.
The poll showed the labour market would continue to be
tight, with unemployment dipping to a fresh record low of 4.9
percent at the end of May.
The poll showed industrial output rising 8.5 percent
year-on-year in April after a 2.1 percent drop in March, and
retail sales rising 5.6 percent after a 2.9 percent March
decline.
"Industrial output and retail sales (will) bounce back from
negative March readings, but (there is) little doubt that
domestic demand is slowing," van Lauren said.
Economists forecast in a separate Reuters poll <CZ/ECON17>
full-year economic growth of 4.8 percent, down from 6.5 percent
last year, due to the strong crown currency and weaker demand
both home and abroad.
The poll showed foreign trade data, due out on June 6 as the
first release this month, would show an April monthly surplus of
6 billion crowns, down from 8.12 billion March, which surprised
with a year-on-year nominal drop in both imports and exports.
(For a TABLE with the poll results, click on []
(Writing by Jan Lopatka; Editing by Malcolm Whittaker)
