Czech Central Bank expects return of inflation to target to take longer than earlier imagined

Czech Statistical Office released inflation data on Wednesday which showed that February Czech inflation subsided, both at headline and core levels. Headline CPI was slightly higher at 0.1% m/m vs. 0.6% in January; the print was 0.3pp weaker than the Central Bank's forecast for the month. Core inflation was higher at 1%.

Prices of clothing and footwear grew 2.6 percent in February from a year ago and utility costs went up by 0.8 percent. At the same time, transport costs dropped 2.2 percent. The Czech Central Bank noted that inflation remains below its lower tolerance threshold and that return to target could take longer than earlier imagined.

Imported deflation is again an issue and the Central Bank will probably need to consider further monetary stimulus. Since prominent board members strongly oppose the EUR-CZK floor, there are not many alternatives to negative interest rates.

"We forecast only 0.5% average inflation this year compared with consensus forecasts in the 1% range," said Commerzbank in a report.