Czech bonds were only little changed as
the June inflation matched the market
expectations and fell below the central bank
target. Consumer prices in June increased
by 0.3 % m/m, and by 2.8 % in y/y terms.
The rise of consumer prices in June was
mainly driven by more expensive foodstuffs.
In addition, secondary impacts of high
energy prices this year have also caused
price pressures, previously held back, to
break out. This primarily regards bakery
products.
The inflation was also affected by
the traditional “potato” effect produced by
the switch from ware potatoes to early
potatoes. In contrast, prices of clothing and
footwear went down as expected.
In the next few months, we expect that
inflation will stay below the target level of the
CNB. Large uncertainty prevails on the
prices of energy and fuels but these are
prices the central bank has no influence on.
So the inflation does not prompt the CNB to
take any urgent action at the moment. While
the experience of October last year shows
that one cannot exclude the possibility that
the central bank will accelerate increasing
the rates (the Bank Board will have a new
inflation report in two weeks), we assume
that it is in no hurry to do so.
Today, the bond market might monitor the
releases of the May industrial output and
C/A figures, but we do not expect a strong
reaction unless the koruna would move
sharply after these data. We expect Czech
markets largely to track the moves on core
bond markets.
(CSOB - Investment research)