INSTANT VIEW 2-Czech prices dip in Sept, in line with fcast

PRAGUE, Oct 9 (Reuters) - Czech consumer prices dipped by0.1 percent in September versus a month earlier, bringing annualinflation to 3.4 percent, the Statistics Office said on Tuesday.

Both the monthly result and the annual rate were exactly inline with predictions in a Reuters poll. Analysts said the datacould further strengthen the central bank's resolve to easemonetary policy after it cut interest rates to a record low lastmonth.

The annual rate, influenced by a sales tax hike in January,was just below the central bank's forecast of 3.5 percent butabove the bank's target range of 2 percent plus/minus onepercentage point.

The statistics office said the data was influenced by a dropin prices in the sector of recreation and culture, while pricesin transportation, clothing and footwear rose.****************************************************************KEY POINTS:CONSUMER INFLATION(pct change) Sept Aug Sept fcastmonth/month -0.1 -0.1 -0.1year/year 3.4 3.3 3.4

Details of September data.................



"The key drivers of headline inflation remain the same as inprevious months: energy and food prices and previous hikes ofindirect taxes."

"Core inflation, (which is) CPI excluding those items,remains flat, close to zero. The domestic economic environmentstill remains disinflationary: retail sales are soft, real wagesare declining, and consumer sentiment is heading south."

"The central bank policymakers have no strong arguments toreassess their dovish stance. It seems likely the CNB board willcontinue with further policy loosening and another cut oninterest rates, close to zero, until the end of the year seemslikely."


"Headline inflation is slightly above our own forecast butthis was caused mainly by the development of food, householdenergy and fuel prices. Importantly, we continue to see anabsence of demand-led pressures in the Czech economy and in thestructure of inflation data."

"Inflation remains slightly below forecast of the Czechcentral bank's, and the central bank is likely to maintain itsview that anti-inflationary risks to its forecast prevail."

"Nevertheless, the Czech central bank has already only verynarrow space for any further relaxation of its interest ratepolicy, and any further easing is actually not expected for thenear term, at least at the moment. Therefore, the market impactof the September inflation release is likely to be limited."


"The biggest influence was the rise in the price of crudewhich led to an increase of fuel prices. However, this wascompensated for by a drop in other parts, mainly a seasonal dropin prices of recreation."

"Core inflation remains moderately negative. There is noreason for the central bank to change its stance. It canmaintain very loose monetary policy and if needed it can evenuse FX interventions."


- The monthly development was affected by a 13.2 percent drop inthe prices of holiday packages due to an end of the season.- Prices of mobile phones dropped by 1.3 percent.- Food prices were driven lower by a 1.3 percent drop in theprice of eggs and cheese, a 1.5 percent drop in the price ofyoghurts and a 5.6 percent decline in the price of butter.- On the contrary, prices in transportation grew, driven by a2.6 percent monthly rise in fuel prices.- The year-on-year acceleration from August's 3.3 percent wasmainly due to quickening in the rise of fuel prices to 9.6percent in September from 6.5 percent in August.


- The central bank (CNB) cut the key two-week repo rate by 25basis points to 0.25 percent

on September 27, 2012.- Report on last Czech c.bank rate decision......

- The central bank targets headline inflation, which itseeks to keep at 2 percent year-on-year, allowing forfluctuations by plus/minus one percentage point from this level.- The CNB's quarterly prediction sees consumer price inflationof 2.3 percent in the third quarter of 2013 and at 2.3 percentin the fourth quarter of 2013.- The central bank next meets on interest rates on November 1.


- For further details on September and other past inflationdata, Reuters 3000 Xtra users can click on the Czech StatisticalBureau's website:

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(Reporting by Mirka Krufova and Jana Mlcochova. Editing byJeremy Gaunt.)

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