Consumer prices in the Czech Republic edged up by 0.6% y/y in August 2014 slightly accelerating from 0.5% y/y in July mainly due to a faster growth in food prices, data from the statistics office showed. The reading exceeded expectations of analysts polled by CTK news agency who projected annual inflation to stay at 0.5%.

In monthly terms, consumer prices ticked lower by 0.1% in July, in line with market expectations, and following a 0.2% m/m hike in June.

Housing and utilities charges (27% of the basket) stayed unchanged on the month keeping the annual drop at 0.8% in August. The annual contraction was mainly due to a 10.4% decline in electricity prices, while natural gas charges increased by 2.4% y/y and rents by 1.1% y/y.

The annual growth in food and non-alcoholic beverage prices (17% of the basket) accelerated to 1.3% in August from 0.8% the month before reflecting more expensive rice, eggs, vegetable fats and citrus fruits.

Transport prices inched up 0.1% m/m helping keep the annual growth at 0.6%.

The August annual inflation was 0.2pps above the the central bank’s forecast for the month but stayed below the lower band of its target range of 1%-3%. The indicator has been running below the central bank’s target for months forcing the bank to launch in November the first in more than a decade foreign currency interventions to weaken the koruna and stave off the threat of deflation. The weak but still positive growth in the first eight of 2014 confirms that the bank’s decision to use the exchange rate as an additional monetary policy instrument significantly contributed to averting the deflation threat. The bank has said it will exit the weak-koruna regime no earlier than in 2016. Weakening the koruna became the central bank’s primary policy tool after it slashed its main two-week repo to effectively zero in 2012.