CZ: The positive trend in retail sector continues

In September, real retail sales in the Czech Republic increased by 0.2% month-on-month. Year-on-year growth accelerated to 5.6%. These figures exceed our expectations, as we had anticipated a slight month-on-month correction downward, though still with significant year-on-year growth. Overall, little has changed in Czech retail. The growth is primarily driven by a recovery in household consumption, supported by declining inflation, rising real wages, and improved household sentiment.

Consumer sentiment improved for the second consecutive month in October, rising slightly above its long-term average. Along with low inflation and favorable labor market conditions, this positive trend in the retail sector is expected to continue. However, we anticipate inflation to rise slightly above 3% by the end of this year, which should result in a slowdown in year-on-year sales growth. Despite this, the growth rate will remain high.

This year, retail sales are set to return to growth, which is expected to continue over the next two years. This will be driven by economic recovery, low inflation, favorable labor market conditions, and improved economic sentiment. However, despite the anticipated solid growth, real sales levels from 2021 are not expected to be reached until 2026.

We are currently updating our forecast. While we do not anticipate significant changes, the potential introduction of tariffs in international trade by the US and other possible economic measures by the new American administration pose downside risks over the next two years.

Today's data confirm the pro-inflationary trend in the retail sector, and we believe the CNB has no reason to abandon its cautious communication. We expect a 25-basis-point rate cut at today's CNB meeting. The koruna is unlikely to be significantly affected by today's data, as it is currently influenced more by global and geopolitical factors alongside CNB policy.