The CSO released new economic data yesterday that confirmed ongoing recovery in Czech economy and low inflationary pressures.
Industrial product grew by a respectable 2.8% in April. After adjusting for fewer working days, it jumped by robust 7.4%, highest growth since May 1998. The number was better than expected and underlines growing trends within the Czech industry. We expect the industrial output to grow 4% in 2000, recovering 1999 losses. The positive development in the Czech economy reflected also in the further decline of unemployment as it fell to 8.7% in May, from 9.0% in April. It is the fourth decrease in a line. We believe that a part of unemployment rate's fall may be explained by a revival in the Czech economy and the rest may be attributed to a massive government support of ailing industrial giants in the Northern Moravia region.
Despite the Czech economy recovers the inflationary pressures remain under control. Consumer prices grew 0.2% in May (after falling 0.1% in April) and annual CPI reached 3.7% (3.4% in April) that is in line with the market consensus. As always, food prices played a crucial role. They grew 0.3% in May, after falling 0.5% in April. We keep our inflation forecasts unchanged. CPI should rose just above 4% level by the end of 2000 and the average inflation for this year is expected at 3.7%. Net inflation will nudge up, slowly, but it will remain below 3% level until the end of 2000 (the CNB´s net inflation target 3-5%). According to statement of the CNB´s bank board member, Miroslav Hrčíř, the inflation figures are still in line with the CNB´s predictions and inflation is settled on the low levels.
Unlike we commented last time, Thursday's bond market starts to remind those crashes seen in 1997-98. Again long term papers have no buyer while shorter term maturities (3-4 yrs) found some minor buyers. Long term papers lost another half percent this day and reached its life lows (MoF 6.30 and MoF 6.40). CPI figures, despite in line with market anticipation, sent the prices down by a spread; then some minor short-coverings have come. After ECB rate hike bonds recorded another rallye down and even short term maturities lost some of the positions gained in the morning.
Current benchmark prices: MoF 6.75/05 101.20-50 (-30 bps), MoF 6.30/07 98.70-00 (-40 bps), MoF 6.40/10 98.80-10 (-60 bps).