Czech Central Bank Says Inflation Outlook Safe Even as June Prices Gained

Czech consumer-price growth, which exceeded the central bank’s forecast in June for a third month, doesn’t “jeopardize” the inflation outlook, the Ceska Narodni Banka said.

The annual inflation rate was 1.2 percent in June, the statistics office in Prague said on its website today. The median estimate of 12 economists surveyed by Bloomberg was for prices to advance 1.4 percent. On the month, consumer prices were unchanged. The central bank forecast annual inflation of 0.9 percent for June.

Price growth has accelerated this year as improving demand for Czech exports, such as Skoda Auto AS cars, has helped the economy recover from the worst recession since the end of communism two decades ago. Czech gross domestic product rose an annual 1.1 percent in the first three months, the first increase in five quarters.

The central bank said the deviation from its forecast “remained moderate” in June and was caused mainly by higher cost of fuels. “Overall, the published data do not put the forecast in jeopardy,” the bank said in a statement on its website. It said inflation pressures from the domestic economy were “subdued.”

The latest central bank forecast from May sees inflation below its 2 percent target in the second and third quarters of next year. The bank said the inflation rate should rise slightly above the target near the end of this year, while staying within the tolerance band of plus or minus 1 percentage point.

The central bank left the benchmark two-week repurchase rate at a record-low 0.75 percent on June 23, after an unexpected quarter-point cut in May. Governor Miroslav Singer, who took office at the start of the month, said on July 8 that rates are likely to stay at a record low for “quite a while.”

Inflation is likely to exceed the central bank’s target “in the summer months,” though the trend is unlikely to prompt monetary-policy tightening because price growth will be driven mainly by factors outside the influence of monetary policy, said Michal Brozka, an analyst at Raiffeisenbank AS in Prague.

The central bank will “probably wait with raising interest rates until the first quarter of next year,” Brozka said.

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

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