The Czech Central Bank's most recent forecast saw inflation at 0.1% yoy in March. Thus, with actual inflation still above the central bank's forecast, there is no reason to adjust upward the current EUR/CZK floor (set at 27.00).
Moreover, core inflation remains sufficiently into positive territory - core prices were 1.14% higher yoy in March and increased in February too.
In addition, the Czech real economy is recovering solidly, driven by domestic demand, and there has been further improvement in the labour market (increasing employment and a decreasing unemployment rate). Only wage growth is still subdued.
However, if the unemployment rate continues to drop further toward its natural level (NAIRU), the pressure for wage hikes will mount, and this could be an issue next year.
"In the coming months, we expect inflation to remain close to zero. We should see a stronger acceleration of inflation only at the end of this year. Next year, we expect consumer prices to increase by 2.0% on average", Says Societe Generale
