Czech’s unexpected low CPI may renew negative interest rate debate at CNB

Czech Republic’s CPI (consumer price inflation) dropped unexpectedly in May following the marked downward surprise seen in Hungary’s May CPI data. Last month, Czech’s prices declined 0.2 percent m/m as compared to the projections of a rise of 0.1 percent.

Meanwhile, the inflation rate on a year-on-year basis eased to 0.1 percent in May from April’s 0.6 percent. Core inflation, stripping alcohol, food, energy and tobacco, slowed to 0.9 percent y/y in May from April’s 1.2 percent y/y. Hence, this affirms the view that one-off movements in tobacco had a major impact in past month’s inflation blip, said Commerzbank in a research report.

The unexpected CPI data for May is likely to renew the talks at Czech National Bank regarding the negative interest rate. However, it is not expected to affect the EUR/CZK pair in the near term as it is closely tracking the central bank’s floor of 27.