Bloomberg Anywhere Login

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Communications

Industry Products

Media Services

Follow Us

Czech Inflation Slows to Year-Low Amid Policy Easing Talk

The Czech economy is showing weak domestic demand as households and businesses cut spending due to government austerity programs and the euro area’s debt crisis. Photographer: Bartek Sadowski/Bloomberg
The Czech economy is showing weak domestic demand as households and businesses cut spending due to government austerity programs and the euro area’s debt crisis. Photographer: Bartek Sadowski/Bloomberg

Jan. 9 (Bloomberg) -- Czech December inflation was the slowest in a year and the unemployment rate climbed to a 22-month high, bolstering the case for a looser monetary-policy stance as the central bank contemplates koruna sales.

The inflation rate dropped to 2.4 percent, from 2.7 percent in November, the Czech Statistics Office in Prague said in a statement on its website today. The reading matched the median forecast in a Bloomberg survey of 15 analysts and was below the central bank’s 2.8 percent estimate for the month. Consumer prices rose 0.1 percent in December, while the jobless rate advanced to 9.4 percent from November’s 8.7 percent.

The Czech economy is showing weak domestic demand as households and businesses cut spending due to government austerity programs and the euro area’s debt crisis. The central bank is in uncharted territory after cutting the benchmark rate to effectively zero, while several policy makers have mentioned selling the koruna as a way to further relax conditions as the economic recession risks stretching into the longest ever.

“Demand-led inflation pressures still don’t exist in the Czech economy and this is unlikely to change any time soon,” said Radomir Jac, chief economist at Generali PPF Asset Management in Prague. “Inflation developments indicate the central bank has room to further ease monetary conditions if it decided to do so -- via interventions in the foreign-exchange market.”

Koruna Gains

The koruna has lost 3.9 percent against the euro since Sept. 17, one day before Governor Miroslav Singer first said the central bank may use sales of the currency to ease monetary conditions. That’s the third-worst performance among major emerging-market currencies tracked by Bloomberg in the period. The koruna gained 0.1 percent to 25.529 to the euro by 1:05 p.m. in Prague.

Gross domestic product shrank for a third three-month period from July to September, matching the longest quarterly declines recorded three years ago and in 1997, according to the latest data from the statistics office.

‘Technical Zero’

The Ceska Narodni Banka held the main two-week repurchase rate at 0.05 percent, almost three-quarters of a percentage point less than the euro-area benchmark, at a board meeting Dec. 19. The bank will keep rates at a “technical zero” until it sees a significant increase in inflation pressures, Vice-Governor Vladimir Tomsik said last week.

Monetary policy inflation, calculated by the central bank as price growth adjusted for changes in indirect taxes, slowed to 1.1 percent, just above the 1 percent lower end of the target range.

“The data confirm the message of the bank’s forecast of the current anti-inflationary effect on the domestic economy, and this effect may be more pronounced than predicted,” Tomas Holub, the head of the central bank’s monetary and statistics department, wrote in a statement after the data release.

The December increase in the unemployment rate reflects the economic recession and was partly driven by seasonal factors as construction and agriculture businesses need fewer workers during winter, according to Jan Vejmelek, chief economist at Komercni Banka AS in Prague.

‘Quick Reaction’

“The declining utilization of production capacity lowers workforce needs; construction faces long-term problems, while retail and other service industries are suffering from weak domestic demand,” he said by e-mail.

Selling the currency is the next preferred policy tool because of the “proven and quick reaction by the economy to a depreciation of the koruna exchange rate,” Tomas Holub, the head of the central bank’s monetary and statistics department, wrote in a column for the Euro magazine posted on the central bank’s website on Dec. 3.

While inflation below the central bank’s forecast may be an argument for further policy easing, the central bank probably won’t start selling the koruna before its Feb. 6 policy meeting, according to Patrik Rozumbersky, an economist at UniCredit Bank Czech Republic AS.

“The first reason is that the bank board will first wait to see the new inflation forecast,” Rozumbersky said in a report. “The second reason is that the market is doing the job for the CNB, as the koruna has already lost almost 2 percent against the euro since the start of the year.”

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

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.