Consumer price inflation in the Czech Republic eased to a five-year low of 0.1% y/y in April 2014 after staying at 0.2% in the previous three months mainly on the back of a slower growth in food and tobacco prices and falling housing and utility costs, data from the statistics office showed. The reading defied market expectations for a 0.3% annual rise in April.

In monthly terms, consumer prices did not change from March when they also stayed flat on the month.

Housing and utilities charges (27% of the basket) ticked higher by 0.1% on the month slightly softening the annual drop to 2.2% in April from 2.3% in March. The annual contraction was mainly due to a 10.5% decline in electricity and a 9.1% drop in natural gas charges.

Food and non-alcoholic beverage prices (17% of the basket) edged down by 0.9% m/m in April easing the annual growth of the component to 3.3% from 3.7% in the previous month. Transport prices rose 0.1% m/m helping soften the annual drop to 0.1% from 0.7%.

The April annual inflation was 0.1pp below than the central bank’s forecast for the month and 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 four months of 2014 confirm 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’s forecast implies the currency lid to remain in place at least until early 2015. Yet, during the bank’s board monetary policy meeting on May 7, central bankers stated that the probability of a later exit from the exchange rate commitment was increasing.