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Monthly forecast: Inflation falls further to 10% in still subdued economy

02/06/2023 16:07

Nominal wage growth visibly accelerated to 9.1% yoy and 3.0% qoq in 1Q23, on our estimates, but lagged behind price growth. Real wages were thus down by a still significant 6.2% yoy. We estimate a cautious rebound in retail sales excl. cars in April (+0.4% mom) following weak household demand in 1Q. We expect consumer spending to gradually pick up more strongly over the remainder of the year, as wage growth is set to accelerate further. Industrial production likely stagnated mom, as growth in the non-manufacturing sectors compensated for the fall in the manufacturing output. However, the outlook for industrial output continues to deteriorate amid weakening global demand. The annual growth in consumer prices continued to slow markedly in May. The lingering effect of last year’s higher comparison base and the mom decline in fuel and food prices had an impact. We expect inflation to have fallen from 12.7% yoy in April to 10.6% yoy in May. We expect the CNB to remain on hold at its next meeting in June. While the hawkish rhetoric is likely to continue, the repo rate should remain at the current level of 7%. The next move in interest rates is likely to be downward and we expect the first cut in September this year. Subsequent cuts are likely to be gradual, keeping rates higher for longer.

Autor: Martin Gürtler,Kevin Tran Nguyen,Jaromír Gec
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