Monday, March 10, 2008

Czech Inflation and Unemployment February 2008

Czech consumer prices rose by 0.3 percent in February, keeping annual inflation at the nine-year high of 7.5% which it reached in January, the statistical bureau said on today. Price growth was driven mainly by housing prices, including water and heating, and kept open the possibility that the central bank will raise interest rates once more in the next few months. A separate set of figures from the Labour Ministry showed unemployment fell to 5.9 percent in February from 6.1 percent in the previous month.

The data lacked the kind of negative surprise impact which shocked the market in January but this continuing high inflation may well prompt more monetary policy tightening. The central bank has raised the main repo rate by 200 basis points to 3.75 percent as the economy grwon at a tidy clip over the past three years.

The central bank has acknowledged inflation is still 0.6 percentage points above its fresh forecast, and has been struggling to try to anchor inflation expectations, suggesting that the current spike is largely a short-term deviation.

A major anti-inflationary factor has been the rise in the value of the koruna, which currently stands up some 11 percent year-on-year against the euro. It has been cooling off from the record 24.83 seen on March 4, and briefly dipped to 25.125 after the inflation data from 25.095 before but then firmed back to 25.033 by 1310 GMT.

There are various risks to the banks inflation forecast on both the supply and demand sides. One clear danger if that the rapid rise in some prices, even if only temporary, creates higher costs for businesses that may lead to rises in other prices as well as higher expectations for higher inflation among Czech consumers and companies. This risk may well prompt the Czech central bank to raise rates either this month or in the not too distant future.

On the supply side there are gowing pressures from labour shortages in some sectors. Separate unemployment data out today from the Ministry of Labour and Social Affairs showed the number of jobless fell to 5.9%, its third lowest level since 1998 in what is already tight labour market, further boosting the case for a rate hike.

In February the Czech employment offices registered a total of 355,033 job seekers. That is 9,511 less than at the end of January, and 99,704 less than in February 2007. The number of available job seekers (job seekers currently available for work) was 330,641. In the course of February, job offices registered a total of 40,002 first signings. That is 23,152 job seekers less than in January and 718 newly registered job seekers less than in February 2007. In February job offices registration was terminated by 49,513 job seekers. New jobs have been taken up by 31,735 persons.

In February 2008 the unemployment rate was 5.9 % (January 2008: 6.1 %, February 2007: 7.7 %). The unemployment rate was higher than average in 35 districts, the highest being in Most (14.9 %), Karviná (13.1 %), Znojmo and Jeseník both (11.9 %) and Teplice (11.8 %). The lowest unemployment rate was in the districts of Praha–východ (1.7 %), Praha–západ (1.9 %), Praha and Mladá Boleslav (both 2.2 %). The unemployment rate for women was 7.2 % and the unemployment rate for men was 5.0 %.

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