(Adds central bank comment in paragraphs 6-7, updates crown)
By Jan Lopatka
PRAGUE, Feb 8 (Reuters) - Czech inflation jumped to a 9-year
high in January on higher Value Added Tax and health costs,
sending the crown currency to a new peak as the market unwound
bets on interest rate cuts later this year.
The Czech Statistical Bureau said on Friday that consumer
prices jumped 3 percent in January, taking the year-on-year rate
to 7.5 percent, the highest since November 1998.
The market had expected 1.9 percent monthly and 6.2 percent
year on year inflation.
The government raised VAT in January on basic items such as
food to 9 percent from 5 percent and introduced a fee of 30
crowns ($1.71) for seeing a doctor. Home rental prices were also
raised.
"Unless western Europe is going into recession and the
European Central Bank starts an easing cycle, rate cuts in the
Czech Republic -- expressed at yesterday central bank press
conference -- are very unlikely," said JP Morgan economist
Miroslav Plojhar.
The central bank said the year-on-year inflation figure was
0.8 percentage points above its new quarterly inflation
forecast, mainly due to increases in taxes, regulated prices and
food, but added it believed it would fall by early 2009.
"After the fading of this fluctuation inflation should fall
back at the turn of 2008 and 2009 to low levels corresponding to
the CNB's targets," it said.
The bank expects inflation at just 2.4 percent in mid-2009,
below its 3 percent target.
The crown jumped 0.7 percent after the data to an all-time
high of 25.53 to the euro <EURCZK=>, before dipping back to
25.655 at 1235 GMT.
REGULATED PRICES BEHIND JUMP
Inflation has been on the rise across central Europe where
fast economic growth has combined with global commodity price
rises to push prices up.
But the statistical bureau said nearly all of the January
figure -- 2.9 percentage points -- could be attributed to the
administrative measures.
"If there was no tax hike and the consumer basket excluded
items with regulated prices, year-on-year inflation would be
2.8-3.0 percent," said Jiri Mrazek, chief of price statistics
department at the CSU.
The moves were part of the centre-right government's
reforms, which restructured taxes in favour of indirect levies,
raised the cost of healthcare and cut social benefits.
RATE CUTS UNLIKELY
The inflation data followed a 25 basis point interest rate
increase to 3.75 percent on Thursday, on top of four hikes last
year, which still left rates well below the inflation rate.
The central bank looks 12-18 months ahead in its
policymaking and said on Thursday that the next move in rates
could be in either direction.
The central bank does not take into account the effect of
changes in regulated prices on the headline inflation rate when
its sets interests rates.
On Thursday, for the first time, the bank released a
forecast for interbank interest rates. This suggested monetary
policy may be eased by the end of the year, sending money market
rates and the currency lower.
But Friday's data reversed the fall in money market rates,
with short-term money up 6 basis points, a trader said.
(For table of data please double click [], for
instant view double click ID:nL08500428])
(Additional reporting by Petra Vosdstrcilova and Pavel
Mahdal)
