Czechs Fear Another Rate Hike

The Czech unemployment rate fell to 3.8% in September to match an all-time low and inflation was the fastest in five years, cementing expectations interest rates will rise once more this year.

The Czech National Bank lifted rates in August for the first time in almost a decade and voted narrowly to hold off on further monetary policy tightening when it met on Sept. 27, Reuters reported.

With an economy firing on all cylinders, analysts have mostly penciled in a 25 basis point rate hike when the bank next meets in November that would bring its main interest rate to 0.50%.

“A November hike... is a done deal,” Raiffeisenbank chief economist Helena Horska said. “The question remains how many times the CNB will raise rates next year. We expect it to move twice, to 1%.”

Czech unemployment is the lowest in the European Union under Eurostat methodology. Labor ministry data on Monday showed joblessness matched a record low hit in the middle of 2008 before the global financial crisis struck.

Job vacancies climbed to above 200,000 and are 46% higher than a year ago. A growing labor shortage, with many firms starting to worry a lack of staff will stifle growth, has helped push wages up at their fastest pace in a decade recently.

Statistics office data on Monday also showed industrial output rose by 5.8% in August while inflation climbed to 2.7% year-on-year last month.

The inflation rate, which has been at or above the bank’s 2% target since last Christmas, was the highest since October 2012, a month before the central bank cut interest rates to zero to fend off growing deflation pressures that had been coming from a weak eurozone.