Czech September Inflation Rate Rises, Led by Tobacco

Source from:  By Andrea Dudikova Oct. 8 (Bloomberg) 10/09/2008

The Czech inflation rate rose in September, driven by tobacco products, in what economists say is a temporary surge before it drops to the central bank's target as expected. The annual rate rose to 6.6 percent from 6.5 percent in August, the Prague-based statistics office said on its Web site today. The result exceeds the median estimate of 6.5 percent by 13 economists surveyed by Bloomberg. Consumer prices fell 0.2 percent in the month. The central bank, which forecast a September rate of 7 percent, said it expects inflation to fall to the mid-point target of 3 percent next year, allowing room for lower borrowing costs. Economists expect the bank to ease monetary conditions as early as next month as the economy faces greater-than-seen economic slowdown. "Regardless of today's inflation data, there's more room for a further drop of interest rates," Patrik Rozumbersky, an economist at UniCredit Bank Czech Republic AS said in his note. "The deepening global financial crisis implicitly increases the risk of weaker economic growth and puts greater pressure on the inflation drop." Cuts Forecast The bank, which left the key interest rate at 3.5 percent at its last meeting on Sept. 25, said its latest forecast assumes further rate cuts. Rozumbersky said he expects the Czech central bank to cut the key the benchmark rate by a quarter-point at the next policy meeting scheduled for Nov. 6. The koruna was trading at 24.685 to the euro at 12:50 p.m. in Prague, compared with 24.699 late yesterday. The central bank said the inflation rate was lower than it expected because of the development of fuel and food prices, which have been below its forecast since August. The rate will "slow in the fourth quarter of the year according to the bank's forecast and in 2009 will fall back to the low level corresponding to the central bank's target," Tomas Holub, the director of the bank's monetary section, said in an e- mailed statement today. "This will be helped the disappearance of pro-inflationary shocks at the turn of the year, the economic slowdown and the recent quick appreciation of the koruna." Rising the most were prices of tobacco products that increased 4.6 percent from the previous month due to the delayed impact of an excise tax boost. Prices went up in the education segment by 3 percent from August, as the new school year started. The impact on inflation was offset by a 3.7 percent decline in the price of recreation and culture costs from the previous month, the office said. Prices of automotive fuel fell for a third month and were down 1.7 percent from the previous month, reflecting a drop in global oil prices. Food prices fell 0.6 percent from August, the office said. Enditem