(Bloomberg) -- Czech inflation eased in November but remained well above the target as policymakers consider whether to start cutting borrowing costs later this month or hold off until next year.
Consumer prices rose 7.3% from a year earlier, compared with 8.5% in the previous month, the statistics office said on Monday. The reading was slightly above estimates, but the central bank said the trend confirmed expectations of its forecast envisaging a sharp January slowdown to near the upper end of its 1%-3% tolerance range.
After months of a steady decline, inflation has temporarily rebounded in the fourth quarter due to the fading impact of last year’s energy subsidies. The expected further slowdown next year should allow the Czech Republic to join peers in Poland and Hungary in monetary-policy easing.
The $300 billion economy is teetering on the brink of a recession as households curb spending, export-dependent industries suffer from weak demand in Germany and the government plans fiscal restrictions. The central bank’s own forecast suggested rate cuts starting already in the third quarter, but most policymakers are concerned about entrenched price pressures.
“We are still leaning slightly toward the possibility that the central bank could cut rates by 25 basis points in December,” said Jiri Polansky, an analyst at Erste Group Bank AG’s unit in Prague. “However, given the considerable uncertainty about January inflation, we cannot rule out they will be kept stable, postponing the first rate cut until next year.”
The majority of board members voted to keep the benchmark rate at 7% last month — the highest level in nearly a quarter-century — because of worries about the traditional January increase in prices of goods and services. The next monetary-policy meeting is scheduled for Dec. 21.
The closely-watched core inflation measure of underlying domestic pressures eased to 3.9% in November, compared with the 4% projection for the month, the central bank said. It adding that the decline reflected “a fading of growth in prices of foreign inputs and a cooling of domestic demand.”
“The latter is acting against a further increase in the profit margins of producers, retailers and service providers,” the bank said in a statement.
(Updates with central bank comments starting in second paragraph.)
©2023 Bloomberg L.P.