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2019/12/09 / Erste Group Research

Inflation on the rise

This week: November’s inflation rate will be published in most of the CEE countries and we expect it to rise everywhere. In Poland, an increase to 2.6% y/y should be confirmed, on the back of dynamic growth of food prices. The same factor is likely to push Czech inflation to 2.9% y/y, close to the upper bound of the tolerance band. In Romania, inflation should even go beyond it, if our 3.7% y/y forecast materializes. In Hungary, headline inflation at 3.3% y/y would also be above the central bank’s target. Moreover, this is likely not the end of the upward trend. In Serbia, rising inflation would be good news, after the central bank cut the policy rate at the last meeting. This week, we expect it to remain on hold, taking time to assess the effects of monetary easing. Apart from that, we expect to see weak footprints of industrial output in Romania, Slovakia and Slovenia. Trade statistics should indicate the extent to which the slowdown of German industry weighs on export growth across CEE.

The weakening US dollar set the mood last week and mostly caused appreciation of CEE currencies. The zloty and forint were the best performers. The forint got an additional boost from a cutback in outstanding FX swaps by the central bank. We will see what the hefty forint appreciation will trigger from the MNB at today’s FX swap tenders. The leu was relatively flat after a tumultuous week earlier. Investors are advised to brace themselves for a possibly bumpy ride before the Christmas holidays: the US-Sino trade war, British parliamentary election, and Fed and ECB meetings all have the potential to shake up global markets this week. CEE currencies could be affected as well.

Yields mostly increased in CEE, as German Bund yields also went up last week. An outlier was Hungary, where yields eventually dropped after a bumpy ride and spreads above 10Y Bunds fell near 210bp. In the last few months, spreads declined on Polish and Czech bonds, too. The stronger tightening in Hungary is justified by the need for lower wholesale issuance amid the successful sales of retail bonds. Overall, further spread tightening seems unlikely in CEE. Polish spreads are unlikely to decrease further, as no major changes in fundamentals are anticipated. The ongoing fiscal expansion in Czechia also does not warrant spread tightening, while fiscal problems are also not yet solved in Romania.

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General information

AuthorErste Group Research
Product nameCEE Insights
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-


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