Societe Generale’s Kenneth Broux flags that a surprise upside in Czech inflation to 2.5% has reinforced the Czech National Bank’s hawkish stance. With policymakers signalling a possible hold or hike, attention turns to core and services inflation data that could justify a November rate increase. The higher probability of additional tightening is seen as supportive for the Koruna, raising the risk of EUR/CZK moving sustainably below 24.50.

Inflation surprise boosts tightening odds

"In CEE, Czech inflation data this morning surprised on the upside, accelerating from 1.9% in August to 2.5% in September. The release reinforces the increasingly hawkish policy stance of the CNB."

"Policymakers have repeatedly signalled that the next move could be either a hold or a hike. Attention now turns to the data breakdown on October 13th where core and services inflation will determine whether underlying price pressures remain uncomfortably strong."

"Markets will be watching whether core inflation rises above the 3.0% level of August and whether services creep above 4.5%, a threshold the CNB has explicitly highlighted as inconsistent with medium-term price stability."

"The higher probability of additional tightening should remain supportive for the koruna, increasing the risk of EUR/CZK moving sustainably below 24.50."

"A further pick-up in these components would strengthen the case for a November rate hike and cement the status of the CNB' as the most hawkish central bank in the region."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)