PRAGUE, Jan 11 (Reuters) - Czech consumer prices rose by 0.2
percent in December from the previous month, driven by rising
prices of food and non-alcoholic drinks, exactly in line with
market expectations.
The return of price growth means that Czech interest rates
have likely reached the bottom at 1.0 percent after a 25 basis
point cut in December, and the central bank will keep policy
unchanged for several months before starting to tighten some
time in the summer, analysts said.
Consumer prices rose 1.0 percent in December from a year
earlier, the highest level since June, the Czech Statistical
Bureau said on Monday.
A separate set of data showed the jobless rate rose to 9.2
percent of the workforce in December from 8.6 percent a month
earlier, the highest level since January 2006. Analysts in a
Reuters poll saw unemployment at 9.3 percent.
In its November quarterly forecast, the central bank
forecast December annual inflation at 0.5 percent. The bank cut
interest rates to a record low of 1.0 percent on December 16.
The Czech economy retreated by 4.1 percent year-on-year in
the third quarter but rose 0.8 percent from the previous three
months, the second quarterly growth after a two consecutive of
quarters of recession at the turn of 2008 and 2009.
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KEY POINTS:
CONSUMER INFLATION
(pct change) Dec Nov Dec forecast
month/month 0.2 0.2 0.2
year/year 1.0 0.5 1.0
CZECH UNEMPLOYMENT Dec Nov Dec forecast
pct of workforce 9.2 8.6 9.3
Details of December inflation data..............[]
Details of December jobless data................[]
- The monthly price growth was mainly due to a increase in the
prices of food and beverages, by 1.6 percent.
- Transport prices dropped by 0.7 percent, driven by a 1.7
percent fall in car prices and a 0.6 percent drop in fuel costs.
- Overall goods prices rose 0.2 percent, while prices of
services were flat.
- In the year-on-year comparison, fuel prices rose by 15.7
percent. Food prices dropped 3.5 percent.
- The average inflation rate for 2009 was 1.0 percent.
COMMENTARY:
VOJTECH BENDA, SENIOR ECONOMIST, ING WHOLEASLE BANKING,
PRAGUE:
"inflation has returned to the central bank's target after
being below for a number of months. The target is one percentage
point stricter for this year than last year, which will likely
require somewhat stricter monetary policy.
"The figures clearly show that domestic deflationary risks
are negligible or vanishing, and the time will come for the
central bank to start debating when to start raising interest
rates and how fast.
"In the first half of this year we can still expect weak
domestic demand, which will not generate apparent strong
inflation pressures, but in the second half we can expect a rise
in rates to 1.75 percent."
JAN VEJMELEK, HEAD OF ECONOMIC AND STRATEGY RESEARCH,
KOMERCNI BANKA
"The labour market is reacting to the unfavourable economic
situation where a drop of orders... forces producers and
employers to react with lowering costs, including personnel. For
the end of the year it is typically caused by seasonality."
"The following months will be still unfavourable... Another
wave from the automotive sector could add to things after the
end of scrapping subsidies in countries that are our largest
trading partners."
"According to our estimates, unemployment will go up in the
first quarter and could attack 10 percent."
HELENA HORSKA, ECONOMIC RESEARCH, RAIFFEISENBANK
"It is the highest annual rise since June 2009 when
inflation was 1.2 percent. The main reason is food prices."
"This rise is in line with usual seasonal moves at the end
of the year."
"Other segments of the price index show that prices continue
to be suppressed downward."
"For next year we expect on average consumer price growth at
1.5 percent. Due to the low comparative base at the end of the
year we expect inflation over 2 percent... The central bank will
probably have to start raising rates at the end of the summer."
RADOMIR JAC, CHIEF ANALYST, PPF GENERALI ASSET MANAGEMENT
"Developments of both inflation and of the Czech crown
indicate that monetary policy interest rates of Czech central
bank reached their low after somewhat surprising rate cut
delivered in mid-December. We expect first increase in repo rate
from the current 1.0 percent around mid-2010, i.e. in June or
August - and we incline to slightly favour the June meeting, by
25 basis points, as headline inflation is likely to be quite
notably higher at that time compared to current expectation of
the Czech central bank, at least according to our estimates."
PAVEL SOBISEK, CHIEF ECONOMIST, UNICREDIT, PRAGUE
"It seems the development (in unemployment) is very similar
to what was happening a year ago, the rise is not higher than
last year. So the question whether we will see a second wave in
the rise of unemployment is still open. Indications will appear
in January."
"Disinflation in the food sector is waning out... Basically
from the monetary viewpoint, the rise in CPI is not very
relevant because it was caused by volatile items which are out
of reach of monetary policy action."
DAVID MAREK, CHIEF ECONOMIST, PATRIA FINANCE
"Inflation was in line with forecast and the reasons did not
surprise either: it is mainly higher food prices, which were on
the other hand partially offset by cheaper fuel."
"Inflation is above central bank's forecast but probably in
the upcoming half a year the bank will not do anything."
"Inflation develops in line with expectations, the economy
overcame a short-term deflation and in the latter part of the
year prices should near the inflation target of the central bank
which is a reason for rates to remain unchanged at least the
first half of the year."
MARKET REACTION:
The crown currency trades a touch firmer at 26.230 to the
euro <EURCZK=> from 26.245 ahead of the data.
BACKGROUND:
- November foreign trade figures.................[]
- Report on last Czech c.bank rate decision.......[]
[] [] [] []
- The central bank (CNB) targets headline inflation last year,
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 this year.
- The CNB's quarterly prediction sees consumer price inflation
of 2.4 percent in fourth quarter of 2010 and 2.2 percent in the
first quarter of 2011.
LINKS:
- For further details on December 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 Jan Lopatka)
