Czech Inflation at Its Lowest Since March 2022

Czech inflation slowed further in April to a headline rate of 12.7%, its lowest since March 2022, data showed on Thursday, possibly taking pressure off a central bank that has been weighing another interest rate hike.

On a month-on-month basis, overall consumer prices fell 0.2%.

The figures come after the Czech National Bank last week nearly renewed an interest rate hiking cycle that has been on hold since the middle of 2022.

It voted 4-3 for stability, while those backing tighter policy had concerns over wage developments and loose fiscal policy.

With the state budget deficit rising at a record pace so far in 2023, the government is set to detail a budget consolidation plan to cut the 2024 deficit by around 70 billion crowns ($3.30 billion) later on Thursday.

Markets are pricing in little chance the central bank will raise interest rates again, after its 2021-22 tightening cycle lifted the base rate by 675 basis points to 7.00%.

Analysts said April inflation data backed a view of no more rate hikes.

“Inflation could fall even faster as cost conditions are improving,” Banka Creditas economist Petr Dufek said, citing easing gas prices and weakened demand as examples.

Food prices rose 17.3% in April and electricity prices – which had been a big driver behind last year’s surge in inflation – also slowed their growth on a year-on-year basis.

Headline inflation had hit a three-decade peak of 18% in September last year, and the central bank forecasts it at single-digit rates in the second half of the year.

Forward rate agreements expect around 50 basis points in interest rate cuts by the end of the year.

Interest rates around central Europe have been put on hold at elevated levels. Hungary’s central bank, battling inflation over 20%, cut the top of its interest rate corridor last month, paving the way for eventual rate cuts.

Poland’s central bank left its main interest rate on hold at 6.75% on Wednesday, maintaining a view that slowing growth will help curb inflation.