INSTANT VIEW 4-Czech July CPI much lower than expected

                                
 PRAGUE, Aug 10 (Reuters) - Czech consumer prices dipped by
0.4 percent in July from June, putting the annual inflation rate
at 0.3 percent, the lowest level since September 2003 and lower
than expected by markets.
                                
 Inflation has dropped far below the central bank's 2009
target of 3 percent +/- 1 percentage point following a
contraction of 3.4 percent in the economy in the first quarter.
                                
 The bank cut interest rates to a record low of 1.25 percent
last week. It forcast July annual inflation at 0.5 percent,
while analysts in a Reuters poll saw it at -0.1 percent
month-on-month and 0.6 percent year-on-year.
                                
 A separate set of data from the Labour Ministry showed the
July unemployment rate rose to 8.4 percent, from 8.0 percent in
June, in line with expectations and the highest level since
March 2009.
****************************************************************
KEY POINTS:
(pct change)          July         June        July forecast
 month/month          -0.4          0.0         -0.1
 year/year             0.3          1.2          0.6

 Details of July inflation data..................[ID:nPRA004696]
 Details of July unemployment data...............[ID:nPRG003556]
 
- The monthly price drop was mainly due to a decline in food
prices and prices of non-alcoholic beverages, which fell 2.4
percent.
- Most food prices dipped. The price of bread fell by 3.5
percent while the price of milk dipped by 3.6 percent.
                                
 
                                
 COMMENT
                                
 JIRI SKOP, ECONOMIC AND STRATEGY RESEARCH, KOMERCNI BANKA
                                
 "A delayed effect of the weak crown has been offset by weak
demand pressures."
                                
 "We think inflation hit bottom in July and should move
around low levels of around 0.5 percent until November."
                                
 "We should avoid deflation thanks to a weaker crown, which
will lead to... an acceleration of annual growth in consumer
prices at the end of the year."
                                
 
                                
 VOJTECH BENDA, CHIEF ECONOMIST, ING
                                
 "The decline was across the board... and reflects the drop
in the economy."
                                
 "For now we are not threatened with deflation, or a
long-term, protracted decline in prices, although we can see a
drop in prices in the next several months."
                                
 "Central bank rates are already so low that we should not
expect a major move in rates."
                                
 
                                
 STANISLAVA PRAVDOVA, ANALYST, DANSKE BANK
                                
 "Inflation definitely surprised on the downside. If we look
at the number, I think the main culprit was food prices and
partly due to base effects."
                                
 "It's definitely a low number and keeps the door open for
more rate cuts from the central bank."
                                
 "Unemployment came out in line. It is going up and confirms
that the labour market continued to deteriorate, and is going to
have the same trend going forward."
                                
 
                                
 DAVID MAREK, CHIEF ECONOMIST, PATRIA FINANCE
                                
 "It's lower than expected, mainly due to falling food
prices. It's hard to influence those prices, so looking at core
inflation I would say the current inflation environment is not
surprising and it was possibly the reason for the latest rate
cut."
                                
 "However, I think that now there is no space for further
rate cuts because we can see more and more positive surprises in
the world economy."
                                
 "It's expected that inflation can come close to zero and
then pick up between 1 and 2 percent next year."
                                
 "We can't rule out the possibility of deflation in the Czech
economy but the period should be short and without negative side
effects."
                                
 
                                
 RADOMIR JAC, CHIEF ECONOMIST, GENERALI PPF ASSET MANAGEMENT
                                
 "The biggest surprise were prices of food which showed a
significant decline."
                                
 "The Czech central bank can be satisfied, as the number
confirms its view that inflation should remain very low."
                                
 "But at the moment I don't think this number will change the
opinion of markets that rates should remain stable for some
time."
                                
 
                                
 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:nL6146715]
                                
 [ID:nL655323] [ID:nPRG001524] [ID:nL6221606] [ID:nPRA004692]
- 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 July 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]
- Overview of Czech macroeconomic indicators            [CZ/ECI]

- 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; Editing by Michael Winfrey)