Retail sales (excl. vehicles) strengthened their growth from 3.1% y/y in December to 4.7% y/y in January, according to non-adjusted figures of the statistical office. The result was stronger than anticipated, as the consensus projected retail sales growth at 4.1% y/y. The improvement was less pronounced when adjusted for calendar effects, as retail sales growth accelerated from 4.3% y/y (wda) in December to 4.7% y/y in January. Yet, it was a welcomed improvement, showing a somewhat higher level of household spending at the beginning of the year. Retail sales rose by 0.5% m/m (sa) in January, marking four consecutive months of growth.
Improvement came primarily due to non-food sales, whose growth reached 7.8% y/y (wda) in January, up from 6.6% y/y in December and hitting a new 3-month high. Food sales didn’t perform very well, easing their growth from 2.9% y/y in December to 0.9% y/y, possibly because of rising prices, particularly of imported products. The big gains were reported in apparel & footwear sales, which strengthened from 4.8% y/y in December to 6.0% y/y in January, as well as due to sales of pharmaceuticals and cosmetics, up from 3.6% y/y in December to 5.5% y/y in January. There was a boost in cultural and recreation goods, soaring by 22.9% y/y, mostly reflecting post-holiday promotion campaigns. Despite these gains, more expensive purchases eased their growth, like household or ICT equipment, which still suggests households are concerned about making bigger purchases. We don’t find that very strange, as growing uncertainty around Brexit is probably delaying purchasing decisions, especially after government warnings that the Czech Republic’s GDP could be heavily affected by a disorderly Brexit.
All in all, retail sales grew at a robust rate, but we see data as volatile. We find the odds of bigger shifts in either direction as considerable, mostly due to uncertainty, rather than falling incomes. While wage growth slowed down in Q4 2018 and is likely to ease further in 2019, we attribute this mostly to base effects, rather than an actual loss of purchasing power. With unemployment likely to remain at very low levels, we don’t see a particular threat to household income in the near future. Inflation has indeed strengthened in Q1 2019 so far, but this is expected to be only temporary, so we don’t see underlying reasons for retail sales weakening considerably this year.