Czech Republic Inflation

Czech Republic

Inflation rises to three-year high in February

In February, consumer prices added 0.2% over the previous month, only a fraction of the 1.8% jump observed in January, which had reflected an increase of the value-added tax (VAT) from 10% to 14%. The February increase was due to higher prices for fresh food and non-alcoholic beverages. As a result of the monthly increase, annual headline inflation spiked from 3.5% in January to 3.7% in February, which marks the highest rate observed since November 2008. The annual reading overshot both market expectation of a 3.6% rise and the Central Bank's estimate, which had inflation moderating to 3.4%. At the current level, inflation sits above the Central Bank's target of 2.0% (with a tolerance margin of 1.0 percentage points). Owing to the VAT rate increase, the Czech National Bank expects inflation to rise temporarily to just above 3.0% this year, before falling back below its target and end 2013 at 1.4%.

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