INTERVIEW-Czech CPI risks mixed, food prices down-c.banker

                                
 By Jan Lopatka and Petra Vodstrcilova
                                
 PRAGUE, April 23 (Reuters) - Czech inflation risks remain
unclear in both directions but a drop in imported food costs
promises a cooling of prices in that sector, central bank board
member Eva Zamrazilova said.
                                
 Zamrazilova, who was appointed in March, said the bank still
needed to watch the risk of high inflation spilling over into
Czechs' inflation expectations.
                                
 In written responses to Reuters questions, Zamrazilova said
she did not favour frequent interest rate changes, especially if
they went in opposite directions. However, she said she would
make up her mind on rates only at the board's next monetary
policy meeting on May 7.
                                
 The central bank's latest inflation forecast in February
suggested that rates would rise in the short term but drop later
this year. The bank has raised rates five times to 3.75 percent
since last June, and markets are divided on the chances of one
more increase possibly in May or June.
                                
 "The situation remains significantly unclear and ambiguous;
factors in both directions are in play," Zamrazilova said.
                                
 "For me, the latest (February) number on food import prices
-- a month-on-month drop by 0.7 percent, year-on-year growth of
only 1 percent, while in November and December there was 6
percent year-on-year growth -- gives higher chances to a
scenario of an early cooling of food prices."
                                
 Inflation shot up to 7.5 percent year-on-year in January,
partially due to tax changes, regulated price increases, and
energy and food prices rises. But it has started to ebb and the
central bank sees it returning to the 3 percent target in early
2009.
                                
 Zamrazilova said fourth quarter 2007 data showed a clear
drop in consumer demand, which should lead to a fall in
demand-side pressures. However, she said she would still watch
for secondary effects of price growth.
                                
 
                                
 WAGE GROWTH
                                
 Analysts have pointed to rising core inflation and wages, as
shown in February's nominal industrial pay rise of 13.1 percent.
                                
 "I agree that in the manufacturing industry, where in the
past 12 months average real wage growth was almost the same as
productivity growth, the situation is on the edge," Zamrazilova
said.
                                
 The main anti-inflationary factor has been the crown
currency, which has gained 10.5 percent year-on-year against the
euro to Wednesday's 25.08 <EURCZK=>. A firming crown depresses
import prices.
 Zamrazilova stuck to the central bank's line that the
crown's rise in the past few months had outpaced economic
fundamentals, and added that it had been influenced by
investors' flight from the dollar.
                                
 She agreed that dividends paid to foreign investors would
contribute to a weaker crown in the second and third quarters
this year. "But in the sum of all factors, which work in the
pro-appreciation direction, it will be just a partial and rather
temporary correction," she said.
The Czech economy would slow, mainly in the second half of
the year, due to the past interest rate increases and a slowing
euro zone economy, she said. The bank predicts the Czech economy
will grow 4.1 percent this year, down from 6.5 percent in 2007.