INSTANT VIEW 4-Czech Sept CPI -0.4 pct m/m

                                
 PRAGUE, Oct 9 (Reuters) - Czech consumer prices dipped by
0.4 percent in September from August, putting the annual
inflation rate at zero, in line with market expectations.
                                
 Consumer prices showed zero growth for the first time in six
years, and central bank chief Zdenek Tuma said inflation could
fall to negative territory for a prolonged period if the crown
exchange rate remains strong. [ID:nL9379214]
                                
 The Czech economy shrank by 5.5 percent year-on-year in the
second quarter but rose 0.1 percent from the previous three
months.
                                
 The central bank cut interest rates to a record low of 1.25
percent on August 6. 
                                
 In its quarterly forecast, it sees August annual inflation
at 0.5 percent, while analysts in a Reuters poll saw it at 0.0
percent.
****************************************************************
KEY POINTS:
(pct change)           Sept        Aug         Sept forecast
 month/month          -0.4        -0.2         -0.4
 year/year             0.0         0.2          0.0

 Details of September inflation data.............[ID:nPRA004803]
 
- The monthly price drop was mainly due to a decline in prices
of package holidays by 15.1 percent.
- The drop in food and non-alcoholic beverages prices continued.
- Prices of bread fell by 3.6 percent, cheese prices dropped by
1.4 percent. Prices of apples fell by 4.3 percent and other
vegetables by 9.9 percent.
                                
 
MARKET REACTION:
                                
 The crown edged up to 25.86 <EURCZK=> from 25.88 ahead of
the data.
                                
 
COMMENTARY:
                                
 PETR DUFEK, ANALYST, CSOB:
                                
 "Inflation net of administrative measures is undoubtedly in
the negative territory again. In the coming months, we will see
a drop in year-on-year (prices) and at the same time the price
outlook for the next year is improving. 
                                
 "This is why the new central bank forecast will be working
with lower expected inflation and room is being made for a drop
in interest rates already at the next central bank board
meeting."
                                
 
                                
 RADOMIR JAC, CHIEF ECONOMIST, GENERALI PPF ASSET MANAGEMENT
                                
 "The difference between the central bank forecast and the
reality is widening. We are still four weeks before the next
interest rate setting meeting, which is relatively far. But if
you look at the data coming from the economy, inflation is far
lower than expected, output gap and the GDP outlook are much
worse than was expected, at the same time you have a stronger
crown than expected and higher PRIBOR."
                                
 "The CPI index now is among the set of arguments that the
Czech economy might need another stimulus from the central bank
by lowering interest rates."
                                
 
                                
 RAFFAELLA TENCONI, CHIEF ECONOMIST, WOOD & CO.
                                
 "CPI was in line with expectations. The main issue was that
the breakdown shows all categories were either flat or fell,
which means the slowdown was broadly based and supports the
CNB's (central bank's) concern that further appreciation could
tilt into prolonged deflation."
                                
 "So generally, it definitely supports the case for another
25 basis point cut and definitely further dovish rhetoric."
                                
 "(For the crown) it will still tilt it towards weakness, not
major weakness, but gradual depreciation, which is exactly what
the CNB wants."
                                
 
BACKGROUND:
- The central bank decreased the key two-week repo rate by 25
basis points to 1.25 percent <CZCBIR=ECI> on August 6.
- Report on last Czech c.bank rate decision.......[ID:nLO326900]
                                
                 [ID:nL295066] [ID:nL2194111] [ID:nPRA004776]
- 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 target will fall to 2 percent the next year.
- The CNB's quarterly prediction sees consumer price inflation
of 1.3 percent in third quarter of 2010 and 1.9 percent in the
fourth quarter of 2010. Consumer inflation net of the impact of
indirect tax changes is seen at 1.7 percent in the third quarter
of 2010 and 1.9 percent in fourth quarter of 2010.

LINKS:
- For further details on September 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                 [CZ/INSTANT]
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- Key data releases in central Europe    [CEE-CONVERGENCE-WATCH]
- 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)