CZ: Inflationary trends in the retail sector continue

In July, real sales in the Czech retail sector rose by 0.7% month-on-month. Thus, year-on-year sales growth outperformed expectations. The discrepancy with forecasts was partially due to a downward revision of June's data; however, this does not diminish the positive nature of the current figures. Overall, the data affirm ongoing favorable trends in the retail sector, primarily driven by a resurgence in household consumption.

Retail sales are projected to return to growth this year, with this positive trend expected to persist over the next two years. This resurgence will be driven by economic recovery, low inflation, a favorable labor market, and improved economic sentiment. However, despite the anticipated growth, the real sales levels of 2021 are not expected to be reached until 2026. For the years 2024 to 2026, we forecast sequential sales growth rates of 3.7%, 3%, and 2.9%, respectively.

Today's data confirm inflationary trends in the retail sector, and in our assessment, the Czech National Bank (CNB) has no justification to deviate from its cautious stance. We anticipate a 25-basis-point rate cut in the next two meetings. The greatest uncertainty lies in December, when the CNB will likely choose between maintaining stability and implementing a modest rate cut, with the decision hinging on the autumn macroeconomic data.

Today's data are unlikely to significantly impact the Czech koruna. Despite the higher-than-expected sales growth, the overall perspective on macroeconomic developments and future monetary policy remains unchanged.