Czech consumer confidence likely to translate into accelerating inflation..

The strengthening economic performance has been accompanied by a gradual rise in prices. Consumer price inflation has been surpassing both market expectations and those of the Czech National Bank. 

In June, price growth should again accelerate. In mom terms, inflation reached 0.3% (SWDA) according to the estimates, due to a pickup in core prices and mainly in fuel and food prices.

"Yoy inflation should thus reach 1.0%, which would mark a significant difference versus the CNB's staff forecast (0.4% for June). The share of unemployed should register a 0.3pp drop in June toward 6.1%, which would be the lowest level in the past six years. There were not only favourable seasonal effects in June, but we look for a drop in the underlying seasonally adjusted rate of unemployment", says Societe Generale.

These data should be supportive of the local currency. However, as the exchange rate has moved closer to the CNB's floor, the central bankers may try to speak up and verbally intervene to weaken the crown.  

The CNB is likely to see EUR/CZK within the range of 27.30-27.50. The spot is expected at 27.40 at end Q3 and 27.30 as of the end of the year, forecasts Societe Generale. The situation in Greece should have no sizeable impact on the Czech economy. 

A greater risk for the Czech Republic, is the secondary effect of the Greece-related stress, i.e. an increase in risk aversion or a drop in confidence via the rest of Europe. However, as the relatively calm response of financial markets toward the announcement of the Greek referendum have showed, the risks seem far lower compared with the situation just a few years ago.