(Adds c.bank comment, updates prices)
By Jan Lopatka
PRAGUE, Jan 9 (Reuters) - Czech consumer prices rose half a
percent in December on rising food prices, topping market
forecasts of a 0.2 percent gain and increasing the chances of an
interest rate hike in early February.
The Czech Statistical Bureau (CSU) said year-on-year
inflation increased to 5.4 percent from 5.0 percent in November,
reaching its highest since August 2001.
Food and fuel prices have contributed to an inflation rise
across central Europe, reflecting global commodity prices, and
central banks around the region have already tightened monetary
policy screws.
Czech food prices surged 1.8 percent in December alone.
The figures cemented analysts' view that a further rise in
interest rates was likely soon, following four hikes last year
that brought the Czech two-week repo rate to a 5-1/2-year high
of 3.5 percent, 50 basis points below the main euro zone rate.
"From the central bank's point of view the key will be to
convince the public that this is only the result of one-time
influences ... and to keep inflation expectations under
control," said Jan Vejmelek, head of economics and strategy
research at Komercni Banka.
"In our opinion, the central bank should contribute to that
by raising interest rates. We expect a 25 basis point hike at
the February meeting to 3.75 percent."
CENTRAL BANK WATCHING
The central bank (CNB) said year-on-year inflation came 1.5
percentage points above its October quarterly forecast, the key
driver for policy, mainly due to food and fuel prices.
"The deviation from the forecast recorded in November has
grown further," it said in a statement.
But the CNB added its own, closely-watched reading of core
inflation, as well as regulated prices and the impact of tax
changes which are outside the scope of its policy, came roughly
in line with the October prediction.
The CNB aims to keep inflation within a band of 1 percentage
point either side of a 3 percent target. It will next meet on
interest rates on Feb. 7.
The crown currency inched up after the data to a month high
of 25.945 to the euro <EURCZK=>, near a lifetime high of 25.933
seen in early December, before retreating to 25.995 by 1255 GMT.
Forward rate agreements, showing expected interest rates in
the following months, gained 2-5 basis points after the data.
The strong crown is having a dampening effect on inflation
but commodity prices, strong domestic demand and preparations
for tax hikes taking effect this year have contributed to a
quickening in price growth.
Separate data showed unemployment jumped to 6 percent in
December from 5.6 percent in November, in line with forecasts
that there would be a seasonal rise in the jobless rate.
The Czech economy has been growing at an over 6 percent pace
for the third year running, narrowing the central European
country's wealth gap behind western Europe.
Increasingly, the growth has been driven by consumer
spending as employees have reaped the benefit of a strong
business environment.
Inflation is expected to jump further in January, when the
sales tax on food, medicine and other items rose to 9 percent
from 5 percent as part of economic reforms. Energy, housing and
healthcare prices are expected to add to the inflation rise.
"Although the price growth will moderate during the year,
this year's average inflation will reach about double the last
year's 2.8 percent," said Patrik Rozumbersky, an analyst at
UniCredit who expects interest rates at four percent by July.
Details of December inflation data...............[]
INSTANT VIEW on inflation........................ []
Details of December jobless data..................[]
(Reporting by Jan Lopatka; editing by Mike Peacock)
