PRAGUE, July 9 (Reuters) - Czech consumer prices remained
flat in June from May, putting the annual inflation rate at 1.2
percent, in line with expectations, and at the lowest level
since December 2003.
The figure was 1.3 percent in May. Inflation has dropped far
below the central bank's 2009 target of 3 percent as the economy
shrunk by 3.4 percent in the first quarter.
The bank has cut interest rates to record low of 1.5 percent
and some analysts forecast one more quarter-point reduction in
the current cycle. The bank's inflation target will fall to 2
percent as of next year.
A separate set of data from the Labour Ministry showed June
unemployment rate rose to a slightly lower-than-expected 8.0
percent from 7.9 percent in May.
****************************************************************
KEY POINTS:
(pct change) June May June forecast
month/month 0.0 0.0 0.1
year/year 1.2 1.3 1.2
CENTRAL BANK FORECAST: The figure comes above the central
bank's forecast, which envisaged a 1.0 percent annual rate for
June in its quarterly projection made in May.
Details of June inflation data..................[]
Details of June unemployment data...............[]
- The monthly price growth was mainly due to an increase in fuel
prices, which rose 5.8 percent.
- Food prices dipped, mainly due to a 9.4 percent monthly fall
in prices of bread and more than a 26 percent drop in prices of
both vegetable and fruit.
COMMENTARY:
MICHAL BROZKA, ANALYST, RAIFFEISENBANK
"It is probable that (year-on-year inflation) will slow down
further below the 1.0 percent level.
"Inflation is now about 0.2 percentage points above the
central bank's forecast but that is nothing that should concern
the bank. We still do not expect a rate change at the bank's
next meeting, but speculation in the market about a lowering
will probably remain."
JAN VEJMELEK, HEAD OF ECONOMIC AND STRATEGY RESEARCH,
KOMERCNI BANKA
"The unemployment rate has not met the pessimistic
expectations for two consecutive months now. The labour market
is likely past the worst hit."
"Still, the situation remains quite serious. The labour
market will continues to be negatively affected by Czech
companies' economic problems and unemployment will go further up
for another year and will peak at around 10 percent."
RADOMIR JAC, CHIEF ANALYST, GENERALI PPF ASSET MANAGEMENT
"The difference between the real inflation and the
expectation of the central bank is widening... and however
inflation may be low, the inflation trajectory will start rising
at the end of the year as food and oil prices stop having an
anti-inflationary effect."
"This number does not change my opinion that the central
bank will leave rates unchanged."
RAFFAELLA TENCONI, CHIEF ECONOMIST, WOOD & CO.
"It was pretty close to expectations, or slightly lower.
Transport remained the upside pressure at 2 percent
month-on-month. Generally it's a good release. It's close to
what the central bank had expected.
"I think inflation will slow further in the coming months.
It will reach 1 percent or slightly below."
"Overall the outlook for next year looks very, very good and
very close to the centre of the target if not below that. My
view generally is that there is scope for modest monetary easing
in the next months."
"But given the (bank's) latest comments, it would need
perhaps stronger evidence that the euro zone is disappointing
relative to what the central bank is assuming in its macro
projections."
"So it may take a few more a few more months of data before
the bank's board is convinced (to cut). They use consensus
forecasts in their assumptions and consensus tends to lag what's
really going on. So generally I still expect another 25 basis
point cut. The inflation outlook motivates that. but rather than
happening very soon as earlier anticipated, now we may be
talking about August or September."
MARKET REACTION:
The crown currency dipped to 26.021 to the euro <ERUCZK=>
from 25.98 ahead of the data.
BACKGROUND:
- The central bank decreased the key two-week repo rate by 25
basis points to 1.50 percent <CZCBIR=ECI> on May 7.
- Report on last Czech c.bank rate decision.......[]
[] [] []
- 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 CNB's quarterly prediction sees consumer price inflation
of 1.1 percent in second quarter of 2010 and 1.7 percent in the
third quarter of 2010. Consumer inflation net of impact of
indirect tax changes is seen at 1.4 percent in the second
quarter of 2010 and 1.7 percent in third quarter of 2010.
LINKS:
- For further details on June 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 []
- Overview of Czech macroeconomic indicators []
- Key data releases in central Europe []
- 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 Jana Mlcochova)
