- Higher tax-driven inflation should not disturb CNB
- The Czech Flash confirms ongoing recovery in Czech Industry
The Czech government has introduced a new wave of austerity measures at total amount of nearly 4% of GDP over 2013 and 2014. Although further increase in indirect taxes should push the inflation higher, it should hardly alert the hawks on CNB board as the austerity should continue to weigh on the domestic demand and keep domestic inflationary pressures very limited.
On the other hand, the first estimate of the March "Czech Flash" (our leading indicator for the Czech economy) confirms the positive outlook for the exportoriented Czech industry. It has recorded growth for a fifth consecutive month (having reached 35.6), and February’s figures were revised upwards (from 18.4 to 26.2). It is also pleasant to see that all Flash components are improving, including the external orders sub-index of the Czech PMIs, which had lagged in previous months.
On the other hand, the slower rate of Flash improvement (in comparison with February) gives a slight cause for concern. Above all, new orders in the automobile industry could hardly maintain the fast pace of increases registered at the beginning of the year. Also the German Ifo index shows a slower increase in March. If the slowing of the rates of increase were confirmed in the upcoming months, it may serve as a warning. At this point, however, the positive momentum remains on soundly high levels and the slight slowdown in March does not pose a threat to the positive outlook for the Czech industry for the next 3-4 months.