- Inflation for July stood at 0.3% y/y – a significant drop from 1.2% y/y in June. We look for lower rates and yields as this still keeps the door open for more rate cuts from the Czech central bank.
- Unemployment for July was 8.4%, up from 8.0% in June.
The Czech Statistical Office has this morning published inflation for July. Inflation of 0.3% y/y surprised significantly on the downside and was much lower than our forecast of 0.7% y/y and the consensus expectation of 0.6% y/y. The Czech central bank (CNB) had also been expecting higher inflation in July – at 0.5% y/y.
The main culprit behind the lower-than-expected inflation figure for July was lower food prices. Base effects also played a role in such the dramatic decline.
Today’s significantly lower-than-expected number will reignite speculation about whether the Czech central bank has finished with monetary easing following last week’s 25bp rate cut, which brought the key policy rate to an all-time low of 1.25%. At this moment in time, we believe that the monetary easing has come to an end. Our main scenario assumes stable Czech interest rates and a key policy rate of 1.25%. However, taking into account our revised inflation outlook, which confirms very low inflation for the rest of the year and inflation close to zero next year, we believe scope for further monetary easing does exist.
