Bloomberg News

Czech Inflation Is Below Central Bank Goal for Fourth Month

October 10, 2011

(Updates with central bank comments in sixth paragraph.)

Oct. 10 (Bloomberg) -- Czech September inflation was below the central bank’s 2 percent target for a fourth month as policy makers debate whether to cut interest rates from a record low to steer the economy through a slowdown sparked by the euro-area’s debt crisis.

Inflation quickened to 1.8 percent, compared with 1.7 percent in August, the Statistics Office in Prague said today on its website. The median estimate of 13 economists in a Bloomberg survey was 1.7 percent. Consumer prices fell 0.2 percent in the month.

An economic slowdown in the euro area, the main market for Czech exports, and a lower outlook for borrowing costs than previously thought in the currency bloc, have postponed raising Czech rates until around the end of this year, according to a central bank forecast from August. If the debt crisis deepens, a rate cut may follow, Governor Miroslav Singer said after the last rate meeting Sept. 22.

The Ceska Narodni Banka has bucked monetary tightening this year as central banks across Europe increased credit costs to fend off inflation pressures. All seven board members voted to leave the two-week repurchase rate at 0.75 percent in September, half of the European Central Bank’s main rate. It was the 11th consecutive meeting where the benchmark was left unchanged.

Record-Low Rates

The central bank has maintained record-low borrowing costs as budget cuts constrained domestic demand, helping to tame inflation. The bank, whose mandate is price stability, had cut the main rate by 3 percentage points during the global economic crisis that sparked the worst Czech recession since the end of communism in 1989.

September’s inflation was 0.4 percentage points below the central bank’s forecast for the month mainly due to food prices, the central bank said in a statement on its website. Even with the deviation, inflation data are “roughly in line” with the forecast, which sees “insignificant” domestic inflationary pressures, the bank said.

The economic recovery is dependent on European Union demand for its products, which include Skoda Auto AS vehicles and car parts. The bloc purchases about 80 percent of Czech exports, with Germany alone accounting for a third.

Czech growth eased in the second quarter for the first time since a 2009 recession as a slowdown in the EU dented demand for exports and government austerity measures curbed domestic spending.

Gross domestic product rose 2.2 percent in the second quarter from a year earlier, after growing 2.8 percent in the first three months.

--Editor: Douglas Lytle

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


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