INSTANT VIEW 4-Czech Aug CPI -0.2 pct m/m, up 0.2 pct y/y

                                
 PRAGUE, Sept 9 (Reuters) - Czech consumer prices dipped by
0.2 percent in August from July, putting the annual inflation
rate at 0.2 percent, lower than expected by markets.
                                
 Inflation dropped to an almost six-year low, far below the
central bank's 2009 target of 3 percent +/- 1 percentage point.
                                
 The Czech economy shrank by 5.5 percent year-on-year in the
second quarter but rose 0.1 percent from the previous three
months.
                                
 The bank cut interest rates to a record low of 1.25 percent
last month. In a quarterly forecast last month, it forecast
August annual inflation at 0.5 percent, while analysts in a
Reuters poll saw it at 0.3 percent.
****************************************************************
KEY POINTS:
(pct change)           Aug         July         Aug forecast
 month/month          -0.2        -0.4         -0.1
 year/year             0.2         0.3          0.3

 Details of August inflation data................[ID:nPRA004743]
 
- The monthly price drop was mainly due to a decline in food
prices and prices of non-alcoholic beverages, which fell 1.1
percent.
- Most food prices dipped from the previous month. The price of
bread fell by 3.3 percent while the price of milk dipped by 1.7
percent and fruit by 7.9 percent.
                                
 
                                
 COMMENTARY:
                                
 RADOMIR JAC, CHIEF ANALYST, GENERALI PPF ASSET MANAGEMENT:
                                
 "Czech inflation came in slightly lower than expected but
differences vs expectations are really only marginal - both in
terms of headline figure and of its structure. 
                                
 "Annual inflation may fall further, to 0.1 percent in
September and October, but we believe that this will be its
local low.  Pro-inflationary base effects of food and fuel
prices should pull headline inflation higher later in the fourth
quarter: we expect December annual inflation around 1.0 percent.
                                
 "We maintain our view that Czech central bank will keep
interest rates on hold at its September meeting and that it will
most likely keep them unchanged, i.e. will not cut them further,
also in final quarter of the year.
                                
 
                                
 PETR DUFEK, ANALYST, CSOB:
                                
 "This is a little better than expected, mainly due to food
and seasonal sales. This year, package tours prices also did not
rise as usually. From the point of view of monetary policy, this
is no change. Inflation is very tamed, and it will drop further
very soon.
                                
 The chance of negative price growth is rising. The central
bank does not have to change rates, but they will be low for
much longer than the market believes."
                                
 
                                
 VOJTECH BENDA, SENIOR ECONOMIST, ING, PRAGUE
                                
 "Inflation was under pressure from declining food prices,
which is a factor that should fade in the coming months... also
the annual effect of fuel prices should fade."
                                
 "It cannot be excluded that in the coming months inflation
will get below zero for a short time but it cannot be expected
that there should be deflation."
                                
 "Inflation should remain tamed in the next 12 months as the
economy will not grow too fast, and the central bank has no
reason, at least in the next half a year, to raise interest
rates."
                                
 
                                
 JIRI SKOP, ANALYST, KOMERCNI BANKA
                                
 "Inflation is lower and now it is 30 basis points below the
central bank's forecast. So it is anti-inflationary from the
monetary policy point of view. We don't see any further rate
cuts and rates will now stay at a low level."
                                
 
                                
 MARKET REACTION:
                                
 The Czech crown <EURCZK=> weakened a touch to 25.535 to the
euro from 25.525.
                                
 
                                
 BACKGROUND:
- The central bank decreased the key two-week repo rate by 25
basis points to 1.25 percent <CZCBIR=ECI> on August 6.
- Report on last Czech c.bank rate decision.......[ID:nL6146715]
                                
 [ID:nL655323] [ID:nPRG001524] [ID:nL6221606] [ID:nPRA004692]
- The central bank (CNB) targets headline inflation, which it
seeks to keep at 3 percent year-on-year, allowing for
fluctuations by plus/minus one percentage point from this level.
The target will fall to 2 percent the next year.
- The CNB's quarterly prediction sees consumer price inflation
of 1.3 percent in third quarter of 2010 and 1.9 percent in the
fourth quarter of 2010. Consumer inflation net of the impact of
indirect tax changes is seen at 1.7 percent in the third quarter
of 2010 and 1.9 percent in fourth quarter of 2010.

LINKS:
- For further details on August other past inflation data,
Reuters 3000 Xtra users can click on the Czech Statistical
Bureau's website:
                                
 http://www.czso.cz/eng/csu.nsf/kalendar/2004-ISC

- 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>

 (Reporting by Jason Hovet, editing by Jan Lopatka)