Czech headline inflation eased more than expected to below the central bank's 2% target and near a decade low in June, as food and fuel prices fell, preliminary data showed on Tuesday.
The year-on-year inflation rate slowed to 1.5% last month, from 2.1% in May and below a Reuters poll forecast of 1.9%. On a monthly basis, prices fell 0.3%, according to the statistics office's flash estimate.
The slower pace of price increases comes as the Czech National Bank tightened policy, raising interest rates for the first time since 2022 last month, while keeping its options open in terms of its next moves.
Analysts said the drop in inflation due to lower food and fuel prices masked trends in other prices, as pressure remained in services and core inflation excluding volatile items.
"The overall inflation result looks excellent at first glance... However, there is no change in the inflation trends from previous months," said Petr Dufek, chief economist for Banka Creditas, pointing out that there's still a high risk of inflation returning to 3%.
"This justifies the current setting of interest rates and leaves the CNB room to wait and see."
Inflation in other central European economies, including Poland and Hungary, also eased last month, with fuel prices declining after the United States and Iran halted fighting.
Czech inflation was near an almost decade-low of 1.4% in February before the conflict started.
The Czech data showed service prices rose 4.5% year-on-year in June, down from 4.7% the previous month.
Service price growth along with wage growth and the persistence of core inflation, have been cited by the Czech central bank as inflationary risks in its outlook, which sees inflation rising later this year to around 3%.
The central bank, in a post on X, reiterated it expected a gradual increase in inflation, while CNB policymaker Jakub Seidler in another post highlighted the inflation decline last month was driven by volatile items.
"The CNB's monetary policy setting reflects both the continued increase in service prices and the inflation estimate for the monetary policy horizon," Seidler said.