Inflation in October 0.3% m-to-m, 4.4% y-to-y

Price changes in other components of CPI were not important and offset each other. Seasonal factors led to decline of leisure prices by 0.8%. A year ago these price dropped by 1% in October, in 1998 the decline amounted to 0.8%. Somewhat surprising is a decrease of education prices by 0.8%. Transport prices could decline by 0.2% due to a mild downswing of fuel prices (-0.6%) that resulted from the recent development of crude oil prices. However, current situation on the world oil markets and the development of the exchange rate CZK/USD leave only a small possibility for another decrease of fuel prices.

Net inflation reached inflation target for the first time since inflation-targeting regime was introduced. The inflation target for this year was set to 3.5 - 5.5%. We assume that net inflation is going to rise in November but at the end of the year it should backslide to 3.5%. The headline inflation will reach 4.5% at the end of 2000 according to our expectations. Most important factors of further development of inflation and a stance of monetary policy will be development of food prices, situation on the world oil markets and secondary impacts of the previous oil prices jump. We expect that the first central bank rate hike could come during the second quarter 2001.

(David Marek)