August industrial production steamed ahead at a double-digit growth, propelled by rocketing production of transport vehicles and electrical equipment that jumped by more than 30% both. Mining also grew by healthy 14%. The food processing output, on the other hand, fell by 3%. Nominal wages grew by robust 7.6%, i.e. 2.8% in real terms (deflated by the PPI index). Given that the real productivity grew by 12.6% in August, unit labor cost fell further.
A good number was expected for August, as the industry recovery is clearly visible for some time and cyclical factors favored August as well. However, the actual outcome was even better than expected as the market consensus for industrial output was 8% and for industrial sales 9%. Patria was slightly more bullish, with an output growth forecast at 8% and industrial sales at 10%. The better-than-expected number stems mainly from massive boost to car industry as the new Skoda-VW model (Fabia) hit the road, pushing the annual increase in production to 38%. Growth was tamed by falling output in food processing and, chiefly, by crumbling chemical sector, plagued by expensive oil.
Bullish numbers on industry (and construction) complement yesterday's falling unemployment figure (unemployment fell from 9.0% in August to 8.8% in September) and shows a rosy picture of the Czech economy's catching up. Unfortunately, we believe that September numbers will deliver a reminder that the economy is still mired by structural problems: industrial growth should slow down and unemployment may rise again. Together with low inflation (see our yesterday's comment) this should keep the central bank at bay. We maintain, thus, our forecast of stable interest rates well into the next year. Time for a tightening has not come, yet.