Real retail sales beat expectations in March, confirming the healthy financial position of Czech households. Elevated fuel prices and heightened global uncertainty due to protracted conflicts do not yet seem to have taken a toll. The Czech National Bank can still afford to wait and assess the ultimate implications for prices and economic activity.
Spending supported by robust real wage growth
Czech real retail sales gained 4.9% year-on-year in March and beat market expectations, with a monthly increase of 1.2%. Motor vehicle sales and repairs rose 2.0% YoY and remained flat compared to the previous month. Real retail sales gains were solid in both food and non-food goods in annual and monthly terms in March.
The Czech spender obviously has enough resources to keep the wheels spinning, supported by real wage growth of 5.1% in the fourth quarter, and reduced energy bills at the start of the year due to the reduction of regulated fees. Indeed, any annual gain in real wages above 3% is enough to keep consumption buoyant. Households did not panic and have largely shrugged off the Middle Eastern conflict so far. But of course, you never know the counterfactual, so we can only imagine the heights real retail sales could have reached without the conflict and the surge in both fuel prices and uncertainty in March. We believe that global tensions will eventually weigh on Czech consumer spending, but timing this shift is challenging.
Real wages buoy spending

Source: CZSO
Core inflation likely reached 3% in April, while headline inflation was held back by another monthly decline in food prices. This could leave the CNB in a somewhat uncomfortable position, particularly if second-round effects from elevated energy prices prove more pronounced than foreseen. In any case, we are still sailing firmly within the waters of our base-case scenario, under which keeping the policy rate unchanged is the appropriate response. We will look closely at the inflation breakdown on Wednesday, keeping an eye on the rent dynamics in particular, to see how our residential market assumptions are evolving. In the meantime, stay tuned and enjoy the spring.




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