Czech Republic: Inflation remains unchanged for second consecutive month
December 9, 2010
In November, consumer prices added 0.17% over the previous month, which contrasted a fall of the same magnitude observed in October. The monthly rise reflected higher prices for food and non-alcoholic beverages, as well as for alcoholic beverages and tobacco. As a result of the November reading, annual headline inflation remained unchanged for a second consecutive month at 2.0%. The figure exceeded private sector analysts' expectations of 1.9%, but undershot the Central Bank's estimate, which had inflation rising to 2.1%. At its 4 November monetary policy meeting, the Central Bank left the two-week repo interest rate unchanged at a record low of 0.75% for the fourth consecutive month. The Bank last cut interest rates by 25 basis points on 6 May. Monetary officials stated that headline inflation is currently in line with the inflation target (2.0% 1.0 percentage points) and the majority of board members agreed that a rate hike is not required at this moment. Furthermore, monetary officials expect annual headline inflation to remain close to the inflation target next year, as economic growth slows in the wake of the proposed fiscal austerity measures, which are aimed at curbing the public sector deficit. Private sector analysts anticipate that monetary officials may delay removing the monetary stimulus until the second half of 2011, as inflation risks remain moderate. The next monetary policy meeting is scheduled for 22 December. The Central Bank expects inflation to remain below its target rate in the final quarter this year (Q4: 2.5%) but to fall back to 1.9% in the first quarter of 2011. Monetary authorities have set the inflation target (3.0% 1.0 percentage points) in January this year until the Czech Republic's entry to the euro area.
Author: Ricardo Aceves, Senior Economist