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2021/03/08 / Erste Group Research

CEE Special | Inflation on CEE horizon?

Inflation developments likely to be in focus this year in CEE region, as rising expectations scared investors and could become hard nut to crack for central banks. Tight labor markets and base effect from oil prices will be key factors behind rising headline CPI.

During the COVID-19 pandemic, inflation development diverged in the CEE region. Euro member countries and Croatia entered a low inflation or even deflation environment, following core markets. Other CEE countries were characterized by increased headline inflation throughout the year.

The collapse of global oil demand in April 2020, and subsequent sharp drop in oil prices, pushed headline inflation down in 2Q20. However, as economic activity rebounded, oil prices also increased. With prices returning to pre-crisis levels in February 2021, the base effect will push up headline inflation significantly in April-May 2021, adding 1-2pp to the headline figure depending on the country.

The peak in HICP inflation will likely be reached in April-May 2021 and could become a headache for central bankers, especially when coupled with strong double-digit growth of retail sales and industrial production (also due to the base effect). All in all, we think that CEE central banks will, except for the Czech National Bank, remain on hold this year and focus on communicating to the markets that the increase in inflation is only temporary and driven by the base effect.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
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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