(Adds dropped word percent in 11th paragraph)
By Jana Mlchochova
PRAGUE July 16 (Reuters) - Czech retail sales grew less than
expected in May, which analysts said showed a surge in inflation
had put the brakes on consumption and joined in with sagging
exports to hit growth and limit the scope for rate tightening.
Retail sales rose 1.2 percent annually in May, the Czech
Statistical Bureau (CSU) said on Wednesday, compared with a 2.5
percent rise expected by analysts in a Reuters poll <CZ/ECON04>.
High inflation and government fiscal reforms have dented
household disposable income, curbing consumption, a major driver
of Czech economic expansion in the first quarter, responsible
for about a half of total GDP growth.
Higher interest rates since last year have also added to the
burden on a once booming growth rate that has also been sapped
by lower demand for exports because of a strong crown currency
and lower demand in the euro zone, the Czech Republic's main
export destination.
The Czech Finance Ministry has cut this year's economic
growth forecast to 4.6 percent from 5 percent three months ago
and raised its inflation forecast to 6.1 percent from 6.0.
"This figure is part of a slowdown in household consumption
caused mainly caused by high inflation, which has negatively
impacted real wages. Another factor is higher interest rates,"
said Petr Sklenar, chief economist, at Atlantik FT.
"Growth in the rest of the year will be 2 to 3 percent on
average. A drop in growth of household consumption will be one
factor in the slowing economy."
The crown currency, which along with the Polish zloty and
Hungarian forint is trading near record highs, shrugged off the
figures and traded flat at 23.33 to the euro <EURCZK=>.
The surge in global inflation, mainly due to record global
fuel and commodities prices, has impacted central and Eastern
Europe more than in the developed West, as food and fuel prices
make up a greater part of the consumer basket.
Separate data showed on Wednesday, Slovak EU-norm consumer
prices rose to a 21-months-high on the back of high food and
fuel prices, while Polish inflation was above expectations at
4.6 percent.
The Czech central bank has kept the main repo rate at 3.75
percent since February, 50 basis points below the euro zone and
the lowest interest rate in Europe, in the belief that the firm
crown and fading of one-off inflationary effects would help cut
price growth back toward the bank's target of 3 percent.
And although price growth hit 6.7 percent year-on-year in
June, and is expected to accelerate in autumn to over 7 percent,
analysts said the impact of higher rates on economic growth
provided a strong argument for stable rates.
"Rising interest rates are not part of the solution... so
speculation on higher rates should disappear from the market,"
said David Marek, chief analyst at Patria Finance.
INSTANT VIEW: []
TABLE: []
(Reporting by Jana Mlcochova; Editing Victoria Main)
