Czech industry has packed up warehouses, which is stepping up inflation

Czech industry is accumulating supplies to an unprecedented extent, fearing further logistical crises. However, this hamster is a major source of inflation, comments economist Lukáš Kovanda on the latest data on the state of the Czech manufacturing industry, published by IHS Markit. Fortunately, the current global logistics crisis is subsiding, Kovanda adds.

Conditions in the Czech manufacturing sector improved last December, when the Purchasing Managers’ Index (PMI) rose to 59.1 points from 57.1 points in November. At the same time, the data show the greatest improvement in conditions since last August, which was mainly due to faster production expansion, growth in new orders and employment. The level of 50 points in the index is the divide between growth and decline.

“At the end of last year, the adverse effects of the global logistics crisis, which erupted at the turn of 2020 and 2021 as a result of a pandemic, finally disappeared visibly in the Czech Republic. Therefore, operating conditions in the Czech manufacturing industry improved significantly in December 2021 compared to the previous month, the most since last August, ”comments Lukáš Kovanda, Chief Economist of Trinity Bank.

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The survey also showed that, similarly to the production of Czech producers in December, it grew at the highest rate in four months, which companies associated with stronger demand, and increased new orders, despite a lack of materials and delayed deliveries of inputs. New export orders increased the fastest in three months.

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“It was also encouraging that some companies registered a reduction in supply chain problems and the least deteriorating performance in retailers in ten months,” said IHS economist Markit Sian Jones.

What’s at home counts

The elimination of the effects of congestion on international supply and demand chains enables Czech industrial companies to increase production more significantly, as, for example, shortening waiting times for securing key subcontracting. “Subcontractors still face an extremely difficult situation, but in December they made one of their best performances last year. However, domestic industrial companies are still facing a significant increase in the volume of production in progress, which is precisely the result of long delivery times and lack of material on world markets, “added Kovanda.

Where possible, according to Kovanda, industrialists are trying to move from subcontracting to self-supplying components “self-help”, ie own production, which increases employment. This is confirmed by Jones from IHS Markit. “The employment growth rate was even the highest since October 2017,” she added.

At the same time, companies are also accumulating more intensive stocks in order to reduce the risk of exposing production to further supply disruptions in the future. “However, the accumulation of stocks is temporarily escalating the already rapid inflation in both producer and, ultimately, consumer prices. At the time of the accumulation of stocks, the relevant demand is, of course, further strengthened, which is still met by a significantly weakened supply, which has not yet recovered from the effects of pandemic restrictions and the related subsequent global logistics crisis, ”adds Kovanda.

According to the chief economist of the Czech Banking Association, Jakub Seidler, the leading indicators from industry at the end of the year sounded in a slightly optimistic spirit. According to him, the survey also came from Germany or the eurozone. “Companies were relatively optimistic in December about the further development and impact of covid-19 on future demand and production. In this respect, however, it should be noted that the survey took place in the first half of December, so it does not reflect the latest unfavorable pandemic developments abroad at the end of the year. At the end of the year, some optimism in the manufacturing sector may have been somewhat premature, which will become apparent in the coming months, ”Seidler added.

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