Faster inflation likely to speed up end of forex interventions

Czech inflation accelerated in February to 2.5 percent year-on-year from January’s 2.2 percent, the Czech Statistics Office announced on Thursday. Compared to the previous month, consumer prices went up by 0.4 percent. Inflation growth was the fastest since November 2012.

Photo: archive of Radio PraguePhoto: archive of Radio Prague For the second month in a row, year-on-year inflation has remained above the Czech National Bank’s target rate of 2.0 percent, which is one of the prerequisites for the bank to drop its current ‘low crown’ policy.

Experts say this year’s inflation figures are likely to speed up the end of forex interventions, introduced by the Czech National Bank in November 2013 with the aim to head off the danger of deflation and weakened economic growth. The bank originally announced it would stop intervening in mid-2017, but now it seems more likely the move could come in the second quarter of the year.

Among the main factors behind the rise of consumer prices in February were more expensive food products and non-alcoholic beverages as well as growth in the prices for petrol and other fuels. Year-on-year prices of vegetables increased by over 17 percent in February. Among the main reasons was the low vegetable harvest in the south of Europe, caused by cold weather.

The price of potatoes, for instance, increased by nearly 19 percent in February compared to the previous month, while the price of tomatoes and peppers grew by nearly 30 percent. The inflation rate slightly exceeded analysts’ projections, which averaged at 2.4 percent.

According to economist Lukáš Kovanda, the inflation rate will continue to accelerate in March to the level of 2.8 percent. He expects inflation to slow down in the second half of the year, he told the daily Hospodářeké noviny on Thursday.