Czech inflation accelerates more than expected, hits 4-year high

Czech inflation for February came out above market and central bank expectations thus stoking belief the central bank may remove its brake on crown strength in the second quarter. Czech inflation accelerated to a rate of 2.5 percent year-on-year in February, faster than the 2.2 percent increase seen in January and beating forecasts for rise to 2.4 percent.

Czech inflation hit highest since November 2012, when prices grew 2.7 percent. The details of the report showed the annual increase was largely driven by higher prices of food and non-alcoholic beverages and transport. Prices of goods climbed 2.5 percent and prices of services grew 2.6 percent in February.

Month-on-month, consumer prices were up 0.4 percent, slightly faster than the 0.3 percent increase economists had forecast. Inflation shoots up will add pressure on the CNB to drop the koruna cap. In a Reuters poll last month majority of analysts saw the CNB ending its crown commitment in Q2 2017, with most picking April or May as the likeliest time.

"We expect price growth will further accelerate in the upcoming months and inflation may even approach 3% Y/Y. Moreover, we see little probability that inflation could return below the target in 12 months (on monetary policy horizon) so we expect the CNB will exit from the intervention regime in the second quarter of 2017," said KBC Market Research in a report.