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Slovak Jan retail sales jump, c.bank seen cautious

Analysis

Slovak retail sales growth jumped to a four-year high in January, data showed on Monday, and analysts said strong household spending underlined the need for a cautious monetary policy approach.

Retail sales rose by a real 15.6% year-on-year in January, compared with a revised 7.7% annual increase in December, the Slovak Statistics Office said. The figure was well above analyst forecasts of 6.8% growth and it was the highest increase since a 17.0% jump recorded in January 2004. “Such a rise is rather a one-off phenomenon ... but there might be certain monetary policy implications if retail sales maintain such strong growth,” said Miroslav Frayer, an analyst at Komercni Banka in Prague. “Given solid wage growth expectations and labor market tightening, pressures towards demand-led inflation exist,” he added.

Analysts said January data were influenced by the traditional sales season at the start of the year, while a low comparative base from the previous year had also skewed the figure. Maria Valachyova, the senior analyst at Slovenska Sporitelna, expects retail sales growth to decelerate to single digits later this year, though she said growth dynamics may be be faster than in 2007. The Slovak central bank has said it is not registering demand-led inflationary pressures in the fast-growing economy. Slovak inflation has picked up speed in the last few months, but the main drivers were rising costs of food and energy.

The central bank expects inflation to be under the threshold for euro-zone entry when Slovakia’s application to adopt the common currency in 2009 is assessed in spring this year. Slovakia will have to bring its interest rates to euro-zone levels as part of the euro adoption process. The key two-week repo rate is now 4.25%, 25 basis points above the main euro-zone rate. “Strong retail sales data indicate that the central bank should remain cautious,” said Eduard Hagara, an analyst with ING Bank in Bratislava. Should robust household activity last, Hagara said the central bank could wait, until the end of 2008 to align its policy rate with that of the European Central Bank. (Reuters)

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