Bloomberg News

Czech May Inflation Slowest This Year as Central Bank Mulls Cut

June 11, 2012

Czech inflation was the slowest in five months in May as policy makers discuss whether to cut interest rates with the economy struggling to exit a recession.

The inflation rate dropped to 3.2 percent from 3.5 percent in April, the Czech Statistics Office in Prague said on its website today. The reading was higher than the 3.1 percent median forecast of 18 analysts in a Bloomberg survey. Consumer prices rose 0.2 percent from the previous month.

Inflation has exceeded the central bank’s 2 percent target for eight months as the government increased the sales tax to boost budget revenue. The economy’s contraction deepened in the first quarter, with falling domestic demand outweighing rising exports as households cut spending.

The Ceska Narodni Banka left the benchmark two-week repurchase rate at a record-low 0.75 percent on May 3, keeping borrowing costs steady since a cut in May 2010. Two rate setters, including Governor Miroslav Singer, sought a cut in May, while four voted for no change and one wanted to raise borrowing costs.

The government raised the lower bracket for the value-added levy on goods and services including food, drugs and public transport, to 14 percent from 10 percent starting in 2012. Inflation began to accelerate in the final quarter of last year as businesses raised prices before the tax increase took effect.

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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