Czech July Inflation Rate Fell for 2nd Time in Row to 1.7%

The Czech inflation rate dropped for a second consecutive month in July, suggesting the central bank doesn’t need to rush with an interest-rate increase.

Inflation slowed to 1.7 percent, compared with 1.8 percent in the previous month, the Czech Statistical Office said in a statement today. On a monthly basis, consumer prices advanced 0.3 percent after a 0.2 percent decline in June.

Policy makers in eastern Europe have been forced to choose between price stability and choking an economic recovery. The Czech central bank has kept the benchmark interest rate unchanged for 14 months and said Aug. 4 that uncertainty about the impact of the U.S. and the euro region’s debt crisis has delayed the need to tighten monetary policy.

The data will confirm that “there aren’t any dangerous tendencies” in inflation, David Marek, an economist at Patria Finance, a Prague-based brokerage, said before the release. “There is no reason to think about any monetary tightening, especially since the economic situation is set to worsen.”

Price growth has remained under the central bank’s 2 percent target for 27 of the last 28 months and the bank’s latest forecast, released on Aug. 4, sees inflation rising above 3 percent next year because of external factors rather than domestic price pressures.

Inflation in July was overall in line with the central bank’s forecast of 1.8 percent, with the only deviation from its outlook coming from costs of healthcare and regulated prices, it said today in a commentary published on its website.

The central bank also on Aug. 4 revised its forecast for economic growth in 2012 to 2.2 percent from a previously projected 2.8 percent, saying austerity measures will hurt consumer demand.

The monthly rise in consumer prices was driven by a seasonal increase in prices of holiday packages, which was partially offset by declining prices of clothing and shoes. Food prices fell 0.3 percent on month.

To contact the reporter on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net

To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net

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