Elevated inflation is giving policymakers in Central and Eastern Europe headaches. Two of the regions’ outperformers, Poland and Hungary, are seeing headline inflation at around 5%. While we think many of the inflation drivers are transitory, some pose genuine risks.
What you will learn:
- Central banks in the region remain credible and inflation expectations are anchored so far, but the Polish (NBP) and Hungarian (MNB) central banks will need to calibrate policy carefully. We’re expecting more front-loaded recoveries in Poland and Hungary, which will add to inflationary pressures.
- The growth outperformance of CEE countries versus the eurozone will bolster the Czech Republic and Poland’s fundamentals-driven currency appreciation, thus dampening inflation.
- Hungary’s FX position remains precarious, with the MNB having to manage both long and short rates.