Bloomberg News

Czech Inflation Rate Rises to 3-Year High on Food

December 09, 2011

(Corrects time period in headline, first paragraph.)

Dec. 9 (Bloomberg) -- The Czech inflation rate unexpectedly rose to the highest in 35 months in November on rising prices of food as policy makers debate whether to cut interest rate amid slowing economic growth.

Inflation accelerated to 2.5 percent from 2.3 percent in October, the Prague-based Czech Statistics Office said in a statement today on its website. The result exceeded the 2.3 percent median forecast in a Bloomberg survey of 16 economists. The central bank saw November inflation at 2 percent. Consumer prices rose 0.4 percent from the previous month.

The Ceska Narodni Banka left the benchmark two-week repurchase rate at a record-low 0.75 percent on Nov. 3, a quarter-point less than the European Central Bank’s main rate. One policy maker in Prague sought a 25 basis-point reduction in Czech rates in November and the bank’s new baseline forecast assumed a decline in market interest rates by year-end.

Food and non-alcoholic beverages led price growth, rising 5.3 percent from a year earlier, while the cost of alcohol and tobacco products rose 2.8 percent and transportation cost was up 4.4 percent from a year earlier, the statistics office said.

Monetary authorities in Poland left the seven-day rate unchanged for a fifth meeting at 4.5 percent on Dec. 7, while Hungary raised its benchmark rate by a half-point to 6.5 percent on Nov. 29.

Bank Outlook

The Czech central bank’s outlook from Nov. 3 sees the inflation rate rising to 2.8 percent in the fourth quarter of 2012 mainly because of an increase in the lower bracket of the value-added tax from January. Monetary-policy inflation will move “slightly under the inflation target” of 2 percent through the first quarter of 2013, Governor Miroslav Singer said.

Koruna moves will be important for future decisions on interest rates as a firming currency tames inflationary pressures and tightens monetary conditions, while its weakening makes imports more expensive.

The central bank’s base scenario sees the koruna gaining early next year and it sees the average exchange rate at 23.1 to the euro in 2012. The bank also prepared an alternative scenario which sees a “sharp slowdown” in the euro area’s economic growth next year. Under this outlook, the koruna would be weaker, averaging 24.2 per euro, and market interest rates would stay stable.

The central bank board agreed that the“alternative scenario provided a more realistic picture of the future than the baseline scenario,” according to the minutes from the Nov. 3 policy meeting.

--Editors: Alan Crosby, 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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