Inflation in the Czech Republic accelerated more than expected in September, bolstering the case for the central bank to maintain a cautious approach to interest rate cuts. Consumer prices rose 2.6% year-on-year, driven primarily by volatile food prices, according to data released by the statistics office on Thursday. This figure exceeded the median forecast of 2.4% in a Bloomberg survey and the central bank’s own projection of 2.3% for the month, the news agency reports.
The Czech National Bank (CNB) has already cut its benchmark interest rate by 275 basis points since December, slowing the pace of monetary easing to quarter-point reductions at the last two meetings. Despite the Czech economy lagging behind many European counterparts in its post-pandemic recovery, the rate-setting panel recognized persistent price risks, including rising service costs and a rebounding housing market at their September meeting.
Jaromir Sindel, chief economist at Citigroup Inc.’s Czech unit, had predicted that inflation accelerating to around 2.6% could prompt the CNB to consider pausing the easing cycle. This latest data release appears to support his prediction.
Although investors have recently scaled back bets on further easing, partly due to increased US market rates and outflows from riskier assets, Czech forward rate agreements still suggest bets on around 100 basis points of rate cuts within the next 12 months.
The CNB is scheduled to release core inflation figures later today. This closely-watched measure, which excludes volatile food and energy prices, provides a better indication of underlying domestic price pressures. Headline inflation is expected to remain elevated but within the 1%-3% tolerance range in the fourth quarter, partly due to a lower statistical base from last year.
