Industrial output: Data on the development of industrial production in November should reflect a partial improvement in supply chains. Although the situation here remains very tense, we are seeing improvements in both leading indicators and the data on automotive production. According to AutoSAP statistics, a strong 65% month-on-month increase in car production (SWDA) suggests a potential increase in overall industrial production. At the same time, it should be recalled that car production volumes since the August slump of more than 50% (SA) have been extremely low and are therefore quite far from recovering the lost volumes. In November, year-on-year car production returned to growth of less than 6% after a decline of 47% in October, but this was also significantly helped by the comparison with last November. At that time, production fell by 16% mom (SA) during the COVID wave. In summary, we estimate month-on-month growth of a strong 4.7% for total industrial production in November. This would mean a moderation of the year-on-year decline to -0.6% (adjusted for the different number of working days) after the previous -4.9%. Excluding calendar effects, this would mean growth of 2.0% yoy after a previous decline of 7.4% yoy. The increase in confidence in the industry and thus growth of the purchasing managers' index, together with anecdotal reports of easing supply chain constraints, suggests a further improvement in the industry's performance in the coming months. Another wave of COVID infections due to variant Omicron is still a significant risk.
CPI inflation: Inflation in December is likely to show another high figure, although there are several factors that will hold back the month-on-month rise in prices. Weekly surveys show a reduction in gas station prices and a slight decline in food prices. There is still significant uncertainty in the case of energy, where there have been strong transitions between suppliers, which may have been disinflationary in December. The level of inflation has been temporarily reduced since November due to the waived VAT on energy payments. However, many companies in the area of production and services have announced rising prices, which will probably be reflected in core inflation. According to our estimate, it rose to 8.5% yoy at the end of the year. From the overall consumer price index, we expect month-on-month growth of 0.4% in December and an acceleration of the year-on-year inflation rate to 6.6% from the previous rate of 6.0%. Full VAT payments for energy will return at the beginning of this year. Traders in many areas will reflect rising costs in consumer prices. Estimates of the extent of these changes at the beginning of the year are highly uncertain. However, annual inflation is likely to exceed 7% at the beginning of this year and may be close to 8% in the first quarter. We expect inflationary pressures to subside more markedly in the second half of the year. Inflation has been about a percentage point above the CNB forecast since November, and if our estimate is met, it will be similar for December. Inflation data should thus boost the financial markets’ expectation of a further increase in CNB interest rates. We expect the main repo rate to increase by another 75 bp to 4.50% in February.
Retail sales: In November, we expect slightly weaker data on retail sales. This is due to declining consumer confidence, which is related to rapidly rising consumer prices, especially in energy, as well as renewed concerns about the impact of the next COVID-19 wave. Along with increasing retail sales in the period before Christmas, there was a favourable development in the labour market, which goes hand in hand with the growth of the average wage. Data on credit card transactions also shows another slight increase in November. Overall, we expect a month-on-month decrease of 0.8% in real retail sales, which, due to the low base effect from last November, would mean an acceleration of year-on-year growth to 13.8% and, after adjusting for calendar effects, 12.6%. Regarding the increase in car registrations, this time we see a chance for a significant growth in their sales. We expect them to increase by 3% month-on-month and fall year-on-year to 0.2% after falling by 11.8% in October. In this case, total retail sales should increase their year-on-year growth to 9.3% and, after adjusting for calendar effects, 7.2%. In the coming months, a further decline in consumer confidence and fears of rising prices, especially on the energy side, are likely to have a negative effect on retail sales. However, favourable developments in the labour market will continue to offer support.
Economic and Strategy Research
1st December 2022
1st December 2022