People are buying less and less. They are limiting their spending more significantly than during the pandemic, when many shops were closed or access to them was difficult. November retail sales fell for the seventh month in a row, according to statistics data. The Czechs mostly dampened food purchases, on the contrary, sales of cosmetic and toilet products were higher. At the same time, a revival of purchases cannot be expected even in the coming months.
Retail sales fell by 8.7 percent year-on-year last November. In a month-on-month comparison, i.e. compared to October, they fell by 0.3 percent. The figure announced by the Czech Statistical Office on Thursday is higher than most expert estimates.
Analysts, however, are not so surprised by this development. “It’s confirmation that households save where they can, so they buy only the essentials they need for normal operation,” says Jana Mücková, economist and business director of the LOGeco investment group.
According to economists, people postpone so-called excess consumption until the time when inflation settles down and their income stabilizes. These include, for example, household equipment, leisure goods and IT products. Sales of clothing and footwear are also weaker, and after 19 months there was also a year-on-year decrease in sales at stores with pharmaceutical and medical goods.
Mainly food prices went up
The sales of grocery stores were lower by 9.2 percent in November, while sales in specialized grocery stores were even worse at 13.6 percent. “Recently, there has been a relatively brisk growth in food prices, but it slowed down at the end of the year and should slow down at the beginning of this year, considering the development of agricultural commodity prices,” explains analyst David Vagenknecht from Raiffeisenbank. Food prices rose year-on-year to 27.1 percent in November.
“For the entire year 2022, in real terms, retail sales are headed for a year-on-year decrease of approximately four percent,” summarizes the situation by economist Vít Hradil from Cyrrus.
On the contrary, sales of cosmetic and toilet products were slightly higher, where the office registered an increase of almost three percent. In the case of fuels, the decrease was not so significant (2.1 percent), which was mainly contributed by the gradual reduction in their prices at gas stations.
A massive drop
The decrease in sales among traders already occurred in the second half of 2021, the decline continued last year. “Never in the history of the published time series has it happened that retail sales have fallen as strongly for two months in a row as in October and November 2022,” Trinity Bank economist Lukáš Kovanda comments on the situation.
According to him, although salaries, wages and pensions increased year-on-year last summer, the double-digit inflation was so high that the income of people in the Czech Republic decreased significantly in real terms. “Czechs limit their purchases to the greatest extent in history, even more than at any time during the pandemic, when it was not even possible to shop very well,” Kovanda claims.
A short recession is expected
Even the experts’ outlook for the following months is not very optimistic for the time being. “The decrease in the sales of merchants means that the Czech economy continues to slow down its growth and in 2023 it may go into a short and shallow recession,” estimates BHS economist Štěpán Křeček.
A reduction in interest rates by the Czech National Bank would help revive the economy, but the effect would not be immediate. “Therefore, people must prepare for the fact that the situation will not improve immediately and the following months will be difficult,” adds Křeček.
Rising unemployment may be a problem in the coming months, for example. “The main role in limiting consumption will be the concern about future incomes, because unemployment can swing up to five percent,” adds Citfin economist Tomáš Volf.
The December retail figures, which the Czech Statistical Office will publish next month, may be a bright exception, which was influenced by traditional Christmas shopping. “Nevertheless, a number of surveys indicated that domestic households rather saved on gifts during the past Christmas, and Christmas purchases, and with them retail sales for December, will also very likely show a year-on-year decrease,” adds Generali Investments CEE economist Radomír Jáč.
On the other hand, according to experts, the reduced demand for goods from Czech households will act as a stop sign for further price increases. “This may get some sellers into trouble with the sustainability of their own business, but it will contribute to easing domestic inflation,” concludes Hradil.
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