CZ: Retail sales growth remains strong
In August, real sales in Czechia experienced a modest increase of 0.1% month-on-month. This performance slightly exceeded our projections, as we had anticipated a 0.2% month-on-month decline due to typical monthly fluctuations and a minor deterioration in household sentiment. Additionally, an upward revision of historical data has elevated the year-on-year trend. Collectively, today's data affirm the ongoing positive developments within the retail sector. This growth is primarily fueled by a resurgence in household consumption, supported by declining inflation, rising real wages, and enhanced household sentiment.
Consumer sentiment rose by 0.6 points to 97.9 in September, effectively halting its prior multi-month decline. Overall, it remains proximate to its long-term average. Coupled with low inflation and positive developments in the labor market, this suggests that the favorable sales trend is likely to persist. Nevertheless, we anticipate a slight uptick in inflation to just above 3% by the end of the year, which is expected to result in a deceleration of year-on-year sales growth. Despite this, the growth rate will remain robust.
Retail sales are projected to resume growth this year, with this positive trend expected to persist over the next two years. For the years 2024 to 2026, we expect retail sales growth of 3.7%, 3% and 2.9%, respectively. However, despite the anticipated robust growth, real sales are not expected to reach 2021 levels until 2026.
Today's data confirm inflationary trends in the retail sector, and in our view, the Czech National Bank (CNB) has no reason to abandon its cautious stance. Consequently, we continue to anticipate a 25-basis-point rate cut in November. However, uncertainty remains for December, when the CNB will likely choose between another 25-basis-point rate cut and maintaining rate stability. This decision will be influenced by forthcoming data, the next rate decisions by the ECB and the Fed, the performance of the koruna post-US elections, wage trends, price developments in the service sector, and the geopolitical landscape. Recent data from the German economy and a significant drop in fuel prices increase the likelihood of a December rate cut to 3.75%. Conversely, the current rise in oil prices, driven by Middle Eastern tensions, suggests inflationary pressures that favor rate stability. Greater clarity is expected in November.
Today's data should not significantly impact the koruna, which is currently more influenced by global and geopolitical factors.