Czech Inflation Slows Further as Market Expects Rate-Cut Debate

Czech inflation eased further in July, boosting arguments for the central bank to start discussions about the timing and pace of monetary easing.

(Bloomberg) — Czech inflation eased further in July, boosting arguments for the central bank to start discussions about the timing and pace of monetary easing.

Consumer prices rose 8.8% from a year earlier, the lowest reading in 19 months, according to data published by the statistics office on Thursday. The inflation rate was in line with market consensus and slightly below the central bank’s projection for the month.

The Czech Republic is recovering from the worst cost-of-living crisis in three decades as lower energy costs, improving global supply chains and depressed household consumption curb growth in prices of goods and services. The central bank expects inflation to ease to its 2% target next year, although policymakers say that domestic and foreign risks still warrant a cautious approach to rates.

The bank’s fresh forecast implies policy easing starting in the third quarter, and Governor Ales Michl said the debate about lowering borrowing costs may begin this fall. But he also warned that rate cuts may come later and proceed at a slower pace than most investors expect.

Money-market prices indicate bets on about 100 basis points of cuts this year, starting as soon as September, although several officials have said that such wagers appeared overdone.

The central bank is scheduled to provide further comment about consumer price trends and release the core inflation measure at 1 p.m. in Prague.

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