Fuel price slump drives Czech prices down in December

PRAGUE: Falling fuel costs pushed Czech consumer prices down in December, putting the annual inflation rate at just 0.1 percent, despite the central bank's weak crown policy.

With interest rates near zero since 2012, the central bank has weakened the crown and pledged to prevent it firming beyond 27 to the euro at least into 2016.

The policy has kept prices from falling since its launch in November 2013, but strong deflationary pressures from the euro zone and a sharp drop in global oil prices have now added to the downward pressure.

Data on Friday showed fuel prices had dropped by 5.2 percent from November, the biggest fall since 2008.

Headline prices dropped 0.1 percent on the month while annual inflation slowed to a rate of 0.1 percent, down from 0.6 percent in November and below analysts' expectations of 0.2 percent.

Central bank vice-governor Vladimir Tomsik said in a newspaper article on Wednesday that any further deflationary pressures would make it hard for for the bank to meet its 2 percent inflation target.

Most analysts say the central bank's likeliest course is to delay the exit from its intervention policy, although a growing number say it may consider weakening the crown again, something it has said it would need a strong impulse to do.

The crown dropped 0.3 percent to 27.965 to the euro on Friday, near a five-month low.

Jakub Seidler, chief economist for the Czech Republic at ING, said he believed the central bank could wait out the drop, given that lower oil prices were a positive supply shock for the economy, which was already in solid condition and not showing signs of any significant drop in activity.

"The (price) drop is on the back of oil prices and we can expect to see (inflation levels) close to zero in the first half this year," he said.

Prices rose in most other segments, and statistics office data out on Friday also confirmed the export-reliant economy had grown at a solid 2.4 percent year-on-year in the third quarter.

The bank said in December that only a long-term increase in deflationary pressures, causing a slump in domestic demand, would make it consider weakening the crown further.