Share of unemployed to break below 4%; inflation accelerates
Economic activity remained solid during the summer, although it slowed compared with the spring. We expect industry to print modest growth fuelling the still-thin external trade surplus. The pace of activity is still sufficient to press the share of unemployed down and create inflationary pressures. Inflation is set to accelerate and thus corroborate our view that the CNB will hike once more this year.
Like in July, the figures for August are affected by company-wide holidays. Even more of the automotive industry than last year stopped operations in August. Thus, unlike the market consensus, we do not expect yoy growth to accelerate in August, and it should rather stay around 3%. The trade balance is set to improve slightly compared with July, but it should still print a relatively low CZK8.8bn surplus. Activity is set to improve in September.
Slower economic activity is still sufficient to create new vacancies. Moreover, there is a positive seasonal influence in September. Thus we believe the share of unemployed will cut another tick and break below the 4% threshold. Decreasing unemployment magnifies wage growth pressures and keeps household confidence high. Retail sales are thus to maintain positive yoy growth although it should moderately decelerate.
Czech inflation to accelerate, pushing the CNB to hike
The average price level is set to decrease two ticks in September on the back of a seasonal drop of prices of packaged holidays and other items linked to leisure. Yet, apart from the seasonality, we see that inflationary pressures have been building up in the economy. Food prices should experience another increase mainly due to dairy products, and fuel prices are recovering as they follow rising oil prices on the global market. Inflation should thus accelerate to 2.6% in September. We believe the CNB will react to the inflationary pressures with a hike in November.