The Czech Republic's inflation slowed down and unemployment remained steady in August, according to government data released Monday.

The inflation rate year-on-year dropped to 6.5 per cent in August, from 6.9 per cent recorded in July, mainly due to falling food, fuel, alcohol and tobacco prices, the Czech Statistical Office said.

Consumer prices in August fell 0.1 per cent compared to July, the statisticians said.

"The inflation developments are positive," said David Marek, a chief economist at Patria consultancy.

High prices have reduced real wages as well as caused headaches to the country's central bank, forced to decide whether to fight inflation or the quickly firming Czech currency.

The bank opted for the currency, cutting the key two-week repo rate to 3.5 per cent on August 7.

"If inflation continues to drop, it would enable further rate cuts," Marek said. "But rather late this year, not in September."

The inflation rate reached a nine-year peak of 7.5 per cent in January, a hike caused both by a set of government policies and growing food and energy prices.

Analysts and the central bank expect inflation to drop early next year to 4-per-cent.

The economy in the former central European Soviet satellite has boomed in recent years at around 6-per-cent growth rates following an influx of foreign investment accompanied by labour shortages.

But the economy is expected to slow down and unemployment to rise due to the firming currency.

In August though, the country's unemployment rate, based on a number of jobseekers registered with state labour authorities, remained at the July level of 5.3 per cent, the Labour and Social Affairs Ministry said.