Despite a cold month, the unemployment rate continues its decline, and we expect the labour market's strong momentum to be the main pro-inflationary factor this year.
Unemployment rate even below the market estimate
Despite a cold February, unemployment rate surprised on the downside and declined to 3.7%. Date published by the Ministry of Labour shows February's share of the unemployed people declined from 3.9% in January to 3.7%.
As such, the labour market again beat market estimates, which expected a decline to only 3.8%. This is in spite of the fact that February was on average the coldest month in the last six years and low temperatures complicated the beginning of some works for example construction.
Demand for labour continues to rise
The demand for employees increased further in February as job vacancies rose again to a new record-high level of 239 000. The highest share of vacancies (over 23%) is reported in the manufacturing industry. In the YoY comparison, 96 000 more jobs were created (67% increase), and the number of unemployed people declined by 100 000 (36% decline).
Thus, the number of job seekers per one job reached 1.17, which is also the lowest share in history.
Prices of services grew by 2.4% YoY in February, despite the base effect pushing YoY dynamics lower. CPI growth should return to target in the next few months, though fuel and food prices are a source of uncertainty. Still, demand-driven inflation should remain strong this year due to solid household consumption supported by favourable wage dynamics. The latter accelerated by 8% YoY in nominal terms in the last quarter of 2017.
Average wage growth reached 7% in 2017, the highest growth since 2008 when it reached 7.9%. Taking inflation into account, real wages grew by 4.4% YoY in 2017, representing the fastest growth since 2003. Moreover, we expect wage growth to accelerate further this year, close to 8%, as a result of an overheated labour market and pressure from unions. Strong household consumption amid positive developments in the labour market should provide support to inflation. Despite lower inflation in February, robust wage growth still provides room for two more hikes by the CNB this year, though they are more likely to be delivered in the second half.
Author: Jakub Seidler, Chief Economist, Czech Republic
27th February 2020
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