Czech Republic inflation surprises to upside in September

Czech CPI inflation was marginally stronger for September at 0.4% yoy, but this is within range of monthly noise. The reading was still 0.2pp lower than the central bank's forecast for the month. The 0.1pp upward surprise can be explained by food prices increasing by 0.8% mom compared with several months of decline leading up to September. 

Going forward, soft commodity prices and a strong agricultural harvest for 2015 will likely cap any inflation upside, says Commerzbank. This will be more the case if the auto sector were to go through a soft-patch because of the fallout from the emission scandal. Finally, there is speculation in the local media that natural gas prices may be cut by the government this quarter. 

All in all, it is more likely than not that inflation will stay stuck at current low levels through 2016. Hence, the discussion about negative interest rates we witnessed at this month's central bank board meeting will remain a topic in coming months too. In the near-term.

"However, this is CZK neutral, our forecast for 27.10 EUR-CZK at end-2015 stays unchanged", argues Commerzbank.