(Adds comments from the central bank, updates crown value)
By Jana Mlcochova
PRAGUE, Aug 8 (Reuters) - Czech inflation picked up in July,
but the central bank may still follow up this week's surprise
interest rate cut with further reductions given signs that
growth is losing steam and expectations inflation will slow.
Consumer prices <CZCPIY=ECI> rose 0.5 percent month-on-month
in June, the Czech Statistical Bureau reported on Friday, a day
after the Czech National Bank (CNB) cut its key interest rate by
a quarter percentage point to 3.50 percent.
That compared with the consensus forecast of 0.6 percent
<CZ/ECON04> <CZ/ECON15> and pushed the annual inflation rate to
6.9 percent from 6.7 percent in June.
The central bank said the figures confirmed that a trend of
falling inflation would be interrupted in summer but added that
it would resume towards the end of 2008.
"At the end of the year the trend of falling inflation will
be renewed, and (CPI) should drop back to central bank target
levels in 2009," the CNB said in a statement.
"This will be helped by the waning of pro-inflationary
shocks from the turn of last and this year, the ongoing slowdown
of economic growth and the recent fast appreciation of the crown
which is beginning to have a strongly anti-inflationary effect."
The central bank expects growth to slip to 4.1 percent this
year and 3.6 percent in 2009 from 6.6 percent last year.
It reiterated its prediction that the inflation rate would
fall next year although its new forecasts indicated a slight
rise in the inflation outlook to 2.5 percent at the end of 2009.
It had earlier seen it falling to 2.2 percent in the third
quarter.
The CNB's inflation target is 3 percent, plus/minus one
percentage point, and will be lowered to 2 percent from 2010.
WEAKENING ACTIVITY
The CNB's surprise rate cut followed warnings it could ease
due to the strength of the crown currency, which is threatening
to drive down inflation and also growth. Central bank Governor
Zdenek Tuma said he could not exclude another cut this year.
Separate data on Friday suggested economic activity was
slowing and could help build the case for another easing.
Industrial output rose 2.2 percent in June from a year
earlier, undershooting forecasts of 5.4 percent, and the
unemployment rate rose to 5.3 percent in July from 5.0 percent
in June.
The crown weakened after the data, falling to 24.325 against
the euro <EURCZK=> from 24.260 before the news but rebounded to
24.220 at 1156 GMT.
Analysts said that while the data pointed to an economic
slowdown, the central bank should not deliver another rate cut
too hastily.
"The current commodity price development gives hope that
inflation will slow down more significantly from October," said
Michal Brozka, an analyst at Raiffeisenbank.
"However, the high inflation level and weakening crown show
that the central bank would not have to hurry to lower rates."
The crown has risen 14.1 percent against the euro in the
past year and was a major factor in the central bank's decision
to leave borrowing rates unchanged between February and August,
even though regional neighbours were raising rates to combat
higher prices.
For a CPI INSTANT VIEW.............[]
For a CPI TABLE....................[]
For an UNEMPLOYMENT TABLE .........[]
For an INDUSTRIAL OUTPUT TABLE.....[]
(Reporting by Jana Mlcochova, editing by Swaha Pattanaik)
