By Michael Winfrey
PRAGUE, Sept. 8 (Reuters) - Runaway consumer prices in
central and Eastern Europe are at last taking a breather and
appear ready to start a steep retreat from multi-year highs this
autumn and pave the way for monetary easing in 2009.
With the sting receding from the double-tongued whip of food
and fuel prices, which came off record highs in July, inflation
fell on a monthly basis in the Czech Republic, while Poland's
central bank head said price growth had peaked.
Czech consumer prices, a broad gauge of inflation targeted
by the central bank (CNB), fell 0.1 percent compared with July,
the stats office said. A Reuters poll showed the market had
expected flat prices.
Annual Czech inflation was 6.5 percent, versus 6.9 percent
in July, and the lowest rate since December last year. It was
also below the CNB's forecast for 6.8 percent.
Besides weaker commodity prices, another factor was the
economic slowdown in Central and Eastern Europe that has been
exacerbated by weaker growth in its euro zone export market and
strong currencies.
And with worries over growth rising -- the Czech central
bank cited them as a key concern when they surprised market
watchers last month by cutting rates to 3.5 percent -- analysts
said further reductions in the cost of borrowing were possible.
"We expect (Czech) inflation down to five percent
year-on-year by the year end and around three percent from early
next year onwards," Dresdner Kleinwort said in a report.
"The conditions remain in place for a further 50 basis
points rate cut in the coming six months." The Czech central
bank also said it expected the rate to fall to within its target
range next year []
Poland's central bank Governor Slawomir Skrzypek said
inflation had peaked in August but risks from food, electricity
and gas prices remained [].
The market expects annual inflation of 4.8 percent in
August, well above the central bank's 2.5 percent target. If
confirmed when the data are issued on Sept. 15, it would be a
seven-year high.
"I am sure that we reached the peak in August," Skrzypek
told reporters in Basel, Switzerland. "It will be something
around 5 percent... I think we have started to go down with our
inflation."
GROWTH CONCERNS
The Czechs, the first in central Europe to end a region-wide
tightening cycle, are at a big discount to the European Central
Bank's 4.25 percent. The CNB expects inflation to return to its
3 percent target next year after the effect of one-off hike to
regulated prices and a government fiscal reform fade.
In Poland, where economic growth was 5.8 percent versus 4.5
percent for the Czechs in the second quarter, surging consumer
spending has kept pressure on prices. Analysts expect the main
rate to rise once more this year, in October, to 6.25 percent.
And although growth is still much more robust than elsewhere
around the globe, the effects of the global economic slowdown is
expected to bite deeper across the region.
Piotr Kalisz from Citibank said he expected Polish growth to
slow below four percent in 2009 on weaker exports and investment
activity, and although inflation was likely to start to decline,
it would likely remain above the (central bank's) 2.5 percent
target throughout 2009.
"As a result, the monetary authorities will have to weigh
weaker GDP against relatively high inflation," he said, adding
that the bank expected one more rate hike in October to be
followed by 75-100 basis points of cuts next year.
The slowdown was also illustrated by Hungarian trade data,
which turned a big deficit in July [].
The numbers, hurt particularly by a record high on the
forint currency and weaker demand in the euro zone -- central
Europe's main export market -- nearly doubled market forecasts
for a trade gap of 238.6 million euros in July.
(Editing by Ruth Pitchford and Victoria Main)
