The Czech consumer price indice (CPI) growth eased to 2% year-on-year in June in a surprise development, beating market expectations of close to stagnating inflation. In May inflation grew by 2.6% y/y.

In month-on-month terms, CPI fell by 0.3% amid drops in prices of transport and food and non-alcoholic beverages. A m/m drop was last registered in December.

Market analysts expect the Czech National Bank (CNB) to continue its policy of lowering interest rates at the August monetary meeting, and the local currency, the Czech koruna (CZK) has weakened.  

The y/y “development was mainly influenced by a slowdown of price growth in most of the consumer basket divisions. In food and non-alcoholic beverages, prices decreased y/y approximately by 4%,” commented Pavla Sediva, head of the Consumer Price Statistics Unit at the Czech Statistical Office (CZSO).   

In the sector of transport, the price growth of fuels and transport lubricants eased to 6.1% y/y (compared to 10.8% in May), and in recreation and culture it registered a decrease of 0.1% in prices of package holidays (+8.4% in May).

The y/y growth was mainly influenced by the sector housing, water, electricity, gas and other fuels where prices of actual rentals increased by 7%, prices of materials and services for maintenance and repair of dwellings increased by 4.7%, while prices of natural gas dropped by 7.9% and prices of solid fuels by 3.8%.

In m/m development, prices of fuels and transport lubricants decreased by 3.7% and prices of cars by 0.3%. In the food and non-alcoholic beverages sector, prices of milk, cheese and eggs decreased by 0.9%, non-alcoholic beverages by 1.3%, smoked meat and sausages by 0.9%, fruit by 1% and sugar by 7.3%.

Analyst at the Czech Banking Association Jakub Seidler highlighted for Czech Television (CT) in the afternoon of June 10 that koruna has weakened by 3% compared to the beginning of June, while analyst Vit Hradil, of Cyrrus Consulting said that the CPI development is “a significant surprise as the market expected a 2.4% value and the CNB 2.5%.”

“Koruna is heading towards weaker values, it is losing several halers to €, reaching up to CZK25.38 per €1,” Hradil was quoted as saying by CT.   

The 2% inflation level is the declared target level of CNB, but market analysts agreed that inflationary pressures remain as prices in services keep growing considerably.

“We think there is room for further lowering of interest rates and this result is firming our view,” an analyst at Raiffeisenbank, Martin Kron, told Czech Press Agency, projecting a lowering of 0.25 basis points in August.