Consumer prices in the Czech Republic increased by 1.7% y/y in March 2013, the same as in February and in line with market expectations, data from the statistics office showed. The biggest upward effect on the annual inflation came from housing, energy prices and food prices, while prices in clothing and footwear as well as in communication and transport declined.

In monthly terms, the consumer price index (CPI) edged up by 0.1% in March, again rising at the same pace as in February. The monthly rise was mainly driven by a rise in food prices (as a result of a 6.6% growth in vegetable prices) and a 0.7% increase in fuel prices.

The March inflation stayed below the central bank’s forecast for the third straight month due to lower-than-expected rise in regulated prices, while food prices rose slightly faster than forecast, the bank said. The March inflation signals a slight anti-inflationary risk to the bank’s macroeconomic forecast according to which tax changes and gradually falling food, administered and import price growth are currently the sources of inflation. By contrast, the domestic economy is dampening inflation. According to the forecast, headline inflation will be close to the bank’s 2% target in 2013 and will fall slightly below the target next year.

The central bank which cut its main two-week repo rate to 0.05% in November and said it will keep the rate at the current record low level until inflation pressures increase significantly. The recently published data on March retail sales showing a 4.7% annual drop indicate that demand-led inflation is not to emerge soon.