Aug. 8 (Bloomberg) -- Czech inflation accelerated in July for the first time in six months on higher prices for natural gas, cigarettes and vacation packages.

The annual rate climbed to 6.9 percent from June's 6.7 percent, the Prague-based statistics office said on its Web site today. The figure was in line with the central bank's forecast as well as the median estimate of 13 economists surveyed by Bloomberg. Consumer prices rose a monthly 0.5 percent, compared with 0.2 percent in June and a 0.6 percent median forecast.

The central bank yesterday cut the benchmark interest rate, the lowest in the European Union, for the first time in three years even though inflation has been above the central bank's 3 percent target since October. Policy makers are counting on the koruna's 16 percent annual jump against the euro, sluggish economic growth and the waning effect of higher taxes and commodity costs to return inflation to its goal in early 2009.

``While the inflation rate moved up after months of decline, nothing suggests this should be a new trend,'' said Patrik Rozumbersky, an economist at UniCredit Bank Czech Republic AS. ``For the coming months, we expect stability or a slight drop in the inflation rate, which will be followed by a steeper decline at the end of this year and in early 2009.''

Market Reaction

The koruna fell to as low as 24.343 in Prague, from 24.198 late yesterday, extending its declines from the past two weeks following the central bank's rate-cut warning. It pared some of its losses later, trading at 24.203 as of 1 p.m.

Monthly price growth was led by administered price increases or seasonal effects. Household natural gas prices were raised 9.7 percent as of July 1, while cigarette prices rose 2.1 percent as producers began to run out of stocks built up before the excise tax on tobacco was raised in January. Vacation packages were 13.1 percent more expensive in the month, when the travel season peaks.

The price of motor fuels fell 0.6 percent in the month, the first drop after four months of increases, the office said, reflecting a drop of global oil prices. New York crude futures have fallen 19 percent from a record $147.27 a barrel on July 11 as an economic slowdown made motorists drive less.

Food costs were on average 0.4 percent cheaper from June while being 10.4 percent more expensive in the year.

Year-End Disinflation

The central bank, in a comment posted on its Web site, reiterated that the current acceleration, caused by a delayed impact of natural gas and cigarettes, will give way to disinflation at the end of the year, squeezing inflation to the targeted levels of between 2 percent and 4 percent.

The central bank expects an inflation rate of 6.3 percent in the July-September period before it slides to 3 percent in the first quarter of next year and 2 percent in the last three months of 2009.

The forecast has created room for additional rate reductions for the rest of this year, along with economic growth projected to slow to 4.1 percent in 2008 and to 3.6 percent a year later, compared with 6.6 percent expansion rate last year, according to the central bank's new forecast released yesterday.

That outlook was supported by today's report showing an unexpected slowdown in June industrial production growth to 2.2 percent, and a jump in the unemployment rate to a four-month high of 5.3 percent.

Disinflation ``will be aided by a fading effect of pro- inflationary shocks from the end of last and beginning of this year, an ongoing slowdown of economic growth and the recent koruna strengthening, which begins to act in a very anti-inflationary way,'' said Tomas Holub, head of the central bank's monetary and statistical department.

For related news: Czech central bank news: NSE CZECH CEN <GO> Czech inflation news: CZCPYOY <Index> CN <GO> Top economic news: TOP ECO <GO>

Last Updated: August 8, 2008 07:04 EDT