INSTANT VIEW 3-Czech industrial PPI up but yr/yr drop deepens

                                
 PRAGUE, Sept 15 (Reuters) - Czech industrial producer prices
unexpectedly edged up 0.2 percent in August from July, but their
annual decline deepened to 5.1 percent, data showed on Tuesday.
                                
 This was above expectations of flat prices, but the
year-on-year drop was the biggest since records started in 1991
and the economy remains on track of very low price pressures on
the horizon.
                                
 In July, industrial producer prices dropped 4.9 percent year
on year.
                                
 The statistics bureau said agricultural producer prices
slumped 5.9 percent on the month, and showed a 23.5 percent year
on year drop, decelerating from July's 26.7 percent fall.
                                
 The Czech crown was little changed after the data, bid at
25.44 per euro, from 25.46 before the data.
                                
 
****************************************************************
KEY POINTS:
(change in percent)       July       June       July forecast
 PPI
 month/month               0.2       -0.4        0.0
 year/year                -5.1       -4.9       -5.3

(For full table of data........................[ID:nPRA004762])

- The monthly producer price index (PPI) rose for the first time
after five months of decline.
- Prices of coke and refinery products rose 4.4 percent from
July.
- Prices of chemicals and chemical products rose 2.9 percent.
- Prices of metals and metal products dropped 0.6 percent and
prices of food products dipped 0.3 percent.
- In farm prices, potato prices dropped 26.6 percent
month-on-month.
                                
 
COMMENTARY:
                                
 JAROMIR SINDEL, CHIEF ECONOMIST, CITI, PRAGUE
                                
 "The PPI was somewhat higher than the market consensus and
our forecasts... however on the yearly basis it's still falling
by roughly 5 percent."
                                
 "Looking forward we can expect industrial prices to increase
due to a base effect next year, so the impact on real interest
rates is likely to be muted." 
                                
 "We expect real interest rates to somewhat ease in the next
year, and for monetary policy I don't think there is any strong
implication. For monetary policy, the key will be the FX
development over the next three to six months and developments
in foreign demand."
                                
 
                                
 VOJTECH BENDA, SENIOR ECONOMIST, ING WHOLESALE BANKING,
PRAGUE
                                
"Prices are still negative. There is a problem of
insufficient demand from abroad and in the domestic market, so
producers are under pressure and have to squeeze their margins."
                                
 "And taking into account the still relatively weak retail
sales published yesterday, we see there are no significant
inflation pressures in the domestic economy. We expect interest
rates on hold for the next couple of quarters."
                                
 
MARKET REACTION:
                                
 The crown edged higher to 25.445 to the euro <ERUCZK=> from
5.46 ahead of the data and 25.500 earlier on Tuesday.
                                
 
BACKGROUND:
- Industrial PPI and agriculture producer prices are watched
closely by the markets as leading indicators for consumer
inflation, which is targeted by the Czech central bank (CNB).

- August consumer inflation                       [ID:nL9191590]
                                
                                              [ID:nPRA004744]
- July industrial output figures                   [ID:nS137302]
                                
                                [ID:nLS601474] [ID:nLB627742]
- Report on last Czech c.bank rate decision.....[ID:nLPRA004692]
                                
  [ID:nL655323] [ID:nPRG001524] [ID:nL6146715] [ID:nL6221606]

LINKS:
- For further details on August producer prices and past data,
Reuters 3000 Xtra users can click on the statistical bureau's
Website:
                                
 http://www.czso.cz/eng/csu.nsf/kalendar/2004-ipc

- 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 Jana Mlcochova)