Economic comment

Retail sales rose by 5.0% y/y (3.3% m/m in seasonally-adjusted terms) in May, stronger than we expected but weaker than the consensus indicated. The improvement was particularly evident in non-durable goods, including food sales and non-specialised shops. Thanks to the favourable labour market situation and consumer optimism, we remain fairly optimistic about the outlook for retail sales and private consumption. Construction output growth dropped in May to -6.5% y/y, below market expectations of -4.8% y/y and our estimate of -5.0% y/y. Civil engineering works, at-6.6% y/y, were responsible for the deterioration. Nevertheless, we consider the construction outlook to be positive given the inflow of EU funds. (...)

Industrial production unexpectedly fell by 1.7% y/y and 2.1% m/m on a seasonally adjusted basis in May. The market and we had hoped for positive y/y growth of around 1%. Also below consensus, but in line with our forecasts, was the employment data for the corporate sector (-0.5% y/y). May was another month in which activity was heavily distorted by calendar effects, making it difficult to interpret the data. Two long weekends apparently did their job. In these circumstances, the lack of deceleration and downward surprise from wages (they accelerated in May to 11.4% y/y from 11.3% y/y in April) may be indicative of persistent wage pressure. As wages are currently in the MPC’s centre of attention, high wage growth may prove more important than doubts about industry. May PPI inflation rose to -7.0% y/y from -8.5% y/y in April, in line with expectations.

Statistical office confirmed that CPI inflation increased in May to 2.5% y/y from 2.4% in April. This comprised marginal increase in goods inflation to 1.2% y/y from 1.1% and stabilization of services inflation at 6.2% y/y. Food inflation decreased to 1.6% from 1.9% amid relatively low 0.3% m/m print. We estimate the core inflation for May at 3.8% with 0.1% monthly price growth.  Our forecasts assumes increase in headline inflation to ca. 3.9% in July, 5.3% at year-end and near 4% at the end of 2025. We expect average core inflation at 0.3% m/m and 4% y/y till the end of next year. Although CPI data tended to surprise to the downside over the last several months inflation remains elevated, which in our view amid recovering consumer demand will keep the MPC away from cutting rates at least till mid-25.