Lower energy and mining costs pushed the Czech industrial producer price index down by 0.7% y/y in January 2014, defying market expectations for a 0.7% hike, data from the statistics office showed. This was the first annual decline since March 2010 and followed a 1.7% hike in December 2013.

Manufacturing producer charges, which have the strongest weight in the index, increased by 1.1% y/y in January, easing from a 1.3% rise in December, due to a slower growth in prices of transport equipment and of coke and refined petroleum products.

Prices of electricity, gas, steam and air conditioning declined 8.8% y/y in January, reversing a 3.5% y/y rise the month before, while water supply charges grew by 3.4%, slower than December’s increase of 5.7% y/y. After rising for two straight months, mining and quarrying charges fell by 3% y/y in January.

In monthly terms, industrial producer prices in the country dropped by 1.3% from December, when they edged up by 0.8%. This was the first-ever January decline in the country’s history mainly reflecting falling energy prices.

Agricultural producer prices fell for the sixth month in a row in January going down by 4%, softening from a 4.3% decline in the previous month. The decline in January came as crop prices shrank by 13.8%, while the growth in animal products prices speeded up to 8.1% from 6.4%. On a monthly basis, agricultural prices were 2.6% higher than in December, when they grew 2.5%.

Construction work prices inched down by 0.5% on the year but were 0.1% higher on the month in January, whereas prices of market services fell by 1.8% on an annual and by 0.5% on a monthly basis.

The PPI inflation in the Czech Republic eased to 0.8% in 2013 from 2.1% in 2012. The January data indicates that the consumer price inflation, which eased to more than a four-year low of 0.2% in the first month of 2014 will further decelerate in the following months. The Czech central bank expects headline inflation to ease to very low levels at the start of 2014, mainly reflecting lower energy prices, but the threat of deflation has probably been averted thanks to the easing of the monetary conditions via the forex interventions. Inflation should return to the bank’s 2% target at the end of the year.