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By Jan Lopatka
PRAGUE, Nov 10 (Reuters) - Czech inflation slowed faster
than expected in October, bolstering the case for lower interest
rates after a bold cut last week as the central European economy
suffered from recession in western markets.
Consumer prices were flat month-on-month, data from the
Czech Statistical Bureau showed on Monday, compared to a 0.2
percent rise forecast by analysts.
The monthly stagnation cut year-on-year inflation to 6.0
percent from 6.6 percent in September.
Inflation data from Hungary and Romania are due on Tuesday,
with Slovakia and Poland reporting later this week, and all are
expected to show weakening inflation picture.
Czech prices were held back in October by a drop in fuel and
car prices, while a hike in the cost of natural gas prevented an
overall monthly drop.
The central bank, expecting inflation to slump towards 2
percent late next year amid a sharp slowdown, slashed its main
two-week repo rate by 75 basis points last week -- three times
the expected 25 basis point reduction -- to 2.75 percent.
"The development of inflation confirms that the decision to
cut rates by 75 basis point was correct and it shows room for
further reduction," said David Marek, chief economist at Patria
Finance.
"We may see (another cut) by the end of the year or the
middle of the next year."
Czech inflation spiked to a nine-year high of 7.5 percent
earlier this year due to changes in taxation and high food and
oil prices, but the trend has turned around with the help of the
strong crown currency.
The crown has dropped from all-time highs of 22.925 to the
euro seen in the summer, but remains the region's best performer
with a 5 percent gain so far this year.
It dropped to 25.18 to the euro after the inflation data
from 25.07 earlier on Monday.
Unlike some other emerging European countries such as
Hungary, the Czech Republic has not suffered any currency
attack. But the export-driven economy suffers from recession in
western Europe, its key export market.
"The real economy will be slowing, already quite
significantly in the fourth quarter, and thus will be
anti-inflationary, further accelerating the inflation fall,"
said Martin Lobotka, an analyst at Ceska Sporitelna.
Third-quarter growth data are due out on Friday, and will
likely show a further cooling from 4.6 percent in the second
quarter.
Next year, the central bank expects a drop to 2.9 percent.
Separate Labour Ministry data showed on Monday unemployment
dipped to 5.2 percent in October from 5.3 percent in the
previous month, above the 5.1 percent forecast by analysts.
For TABLE with inflation figures, click on []
For INSTANT VIEW, click on []
For TABLE with uneployment data, click on []
(Reporting by Jan Lopatka, editing by Mike Peacock)
