Czech inflation eased much more than expected in June as food and fuel prices fell, preliminary data showed on Tuesday, putting the headline rate below the central bank's 2% target and back near a decade-old low.
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 (CNB) 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 down on a halt in fighting between the United States and Iran in the Middle East.
Czech inflation stood at 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%.