(Adds Niedermayer comments, crown reaction, background)
By Petra Vodstrcilova and Martin Dokoupil
PRAGUE, Feb 18 (Reuters) - Czech central bank (CNB)
Vice-Governor Miroslav Singer is nervous about rises in adjusted
inflation and producer prices, which could signal higher than
expected demand-side pressures, he said on Monday.
Consumer and producer price inflation jumped in January,
catching the market off guard and triggering expectations that
the CNB could delay any interest rate cuts beyond end-2008.
The data even revived speculation that the CNB may add
another interest rate hike to the 200 basis points worth of
tightening that has already taken place since late 2005.
"Adjusted inflation ... has shot up. The prognosis was lower
than reality," Singer told an economic seminar. "This is an
issue which can signal that there are higher demand pressures
and overheating in the economy than we have expected if
confirmed."
But he also re-iterated that annual inflation will return
towards the Czech central bank's (CNB) target of 3 percent +/- 1
percentage point in 2009 as one-off price shocks should subside.
Inflation jumped unexpectedly to a nine-year high of 7.5
percent in January, from 5.4 percent in December in part due to
tax hikes and growth in state-regulated prices of housing.
Adjusted inflation excludes fuel, state-regulated prices and
the impact of changes in indirect taxes.
Factory-gate prices, which indicate future consumer price
developments, rose to 6.0 percent on the year last month, led by
surging energy costs.
Singer also said a stronger-than-expected crown currency
against the euro <EURCZK=> may help the bank cool inflationary
pressures in the red-hot economy, echoing earlier comments by
outgoing fellow Vice Governor Ludek Niedermayer [].
The currency's seven-month rally to a record high of 25.075
per euro seen last week <EURCZK=> has been driven mainly by
strong economic fundamentals in the region and a narrowing
negative interest rate spread with the euro zone.
The unit showed no immediate reaction to Singer's remarks,
trading at 25.255 by 1750 GMT, 11.1 percent firmer from a year
ago and up 4.9 percent this year.
A Reuters poll released earlier on Monday saw the crown
weakening to 25.80 versus the euro in one month [].
RATES FLEXIBLE
Singer also said the central bank's past interest rate moves
helped create room for flexible policy actions when needed.
"We have raised interest rates four times last year, each
time by a quarter percentage point ... and we hiked again in
February," Singer told an economic seminar.
"Basically we can say that we have created room to react
(with interest rates) flexibly on both sides, up or down, if
needed," he said.
The seven-member CNB board voted 5-2 on Feb. 7 to raise the
key two-week repo rate by 25 basis points to a nearly 6-year
peak of 3.75 percent to tame inflationary pressures. It said the
next move in rates could be in either direction.
Niedermayer, who voted for the rate hike, expected more
policy dilemmas in the future. He will not participate at the
CNB's next policy meeting on March 26 as his second six-year
term expires at the end of this month.
(Writing by Martin Dokoupil; Editing by Ron Askew)
