Prices grew by 0.2% in August and the annual index of CPI reached 4.1%. Net inflation, targeted by the Czech National Bank, reached 0.2% m-to-m and 3.2% y-to-y in August. Numbers fell in line with the market expectations (market consensus was 0.2% m-to-m and 4.0% y-to-y for CPI, Patria forecasted 0.3% and 4.1% respectively) and they do not contain any new information. By the end of 2000, CPI will hover at around 4.3%, net inflation will end the year just below the CNB's target at 3.2% (target is 3.5-5.5%).
Food prices grew by 0.7% in August, being the most significant inflation factor. Transport prices fell this time, as oil prices were stable in August. There is little evidence of spill-overs from high oil prices into other prices. The central bank thus may feel secure as far as its target for 2001 is concerned. We maintain our forecast that the central bank will keep interest rates unchanged until the end of 2000 and will begin gradual tightening only in 2001. Anyway, the central bank seems more concerned about raging public budget deficits than about inflation per se.