Czech Republic: Inflation rises to 21-month high
January 10, 2011
In December, consumer prices jumped 0.52% over the previous month, which was well above the 0.17% increase observed in November. The monthly rise reflected higher prices for fuels, food and non-alcoholic beverages. As a result of the monthly jump, annual headline inflation climbed from 2.0% in November to 2.3% in December, which represented the highest level registered since March 2009. The higher reading exceeded both private analysts', and the Central Bank's expectations of a 2.2% rise. Meanwhile, at its latest monetary policy meeting, held on 22 December, the Central Bank left the two-week repo interest rate unchanged at a record low of 0.75% for the fifth consecutive month. The Central Bank has not altered its monetary policy since 6 May, when the Bank last cut the two-week repo interest rate by 25 basis points. Officials kept the key monetary policy interest rate below the European Central Bank's main rate of 1.00%, claiming that headline inflation remained in line with the inflation target (2.0% 1.0%), and inflationary risks are balanced. Moreover, the majority of board members agreed that a further rate hike could be postponed until near the end of this year. The announcement represents a policy shift from previous intentions to begin monetary tightening during the second quarter this year. The Central Bank expects inflation to remain below its target rate in the final quarter this year (Q4: 2.0%) and to inch down to 1.9% in the first quarter of 2012. Monetary authorities have set the inflation target at 2.0% ( 1.0 percentage points) until the Czech Republic's entry to the euro area.
Author: Ricardo Aceves, Senior Economist