2016.04.2509:34:00UTC+00Imported Disinflation from the Eurozone Likely to Keep Price Developments in Cee Depressed

Large swings in energy prices over the last 1-2 years have affected headline inflation data in the CEE region. However, core inflation figures are much more stable than the headline data, and have remained quite low. Hence though headline inflation is expected to increase more notably on average in H2 2017, core inflation might be more stable and could rise only moderately in CEE.

Core inflation figures should also be still well below central bank targets in 2017 for most CEE countries. This means that central banks will likely think about further easing (for Hungary, this is already a done deal, while there are risks for Poland).

Romania is the only exception. Due to the hefty wage increases and a cut in the general VAT rate this year, adjusted core2 inflation is expected to jump from this year’s 0% to 3.5% next year. The expected increase in core inflation (coupled with fiscal risks) could trigger monetary tightening in 1Q17.

Hungary central bank is meeting this Tuesday for a rate-setting meeting. "We expect the base rate to be cut by another 15bp. We see the rate at 0.75% at end-2Q16, with risks of additional easing later in 2016. Verbal intervention to weaken the HUF also cannot be ruled out this week." said Erste Group Research.