Inflation paths diverge in the EU
|On the radar
-
Inflation rate in Poland increased to 4.2% y/y in July that is less than anticipated by the market consensus.
-
Flash estimate of July’s inflation in Croatia arrived at 2.3% y/y while in Slovenia at 1.3% y/y.
-
2Q24 GDP in Serbia landed at solid 4.2% y/y.
-
Retail sales growth accelerates to 7.2% y/y while industry expanded 2.0% y/y in July in Serbia.
-
In Romania unemployment rate increased to 5.5% in June.
-
PMI index dropped to 47.8 in July in Romania, while in Poland the index rose for the first time in four months from 45.0 in June to 47.3 in July.
Economic developments
On Wednesday, the flash estimate of Eurozone annual inflation in July ticked up to 2.6% from 2.5% in June. Looking at the main components of Euro area inflation, services are expected to have the highest annual rate in July (4.0%, compared with 4.1% in June), followed by food, alcohol & tobacco, and energy. As far as the region is concerned, flash estimates for July for several countries show a mixed bag. In Croatia and Slovenia, July's inflation rate eased to 2.3% y/y and 1.3% y/y, respectively, while in Slovakia (HICP release), it increased to 2.9% y/y from 2.4% y/y in June. In Poland, July's inflation increase was hefty as it arrived at 4.2% y/y (translating into a 1.4% monthly CPI increase) as opposed to June's figure of 2.6% y/y. The jump happened primarily due to the deregulation of energy prices. The annual inflation rate was 0.2pp below consensus, with our projection being marginally lower than the flash estimate at 4.0%. Post July's inflation jump, price growth is projected to rise towards 5% y/y, mainly due to the unfavorable base effect. In the reminder of the year, apart from Poland, we will see elevated inflation in other countries such as Czechia or Hungary.
Market developments
Today, the Czech central bank holds a rate-setting meeting, and a 25 basis point cut is broadly expected. Although some central bankers said they would consider a bigger rate cut as June's inflation surprised to the downside visibly, the anticipated increase towards the end of the year will keep the Board on the cautious side in our view. All in all, we expect the key interest rate to be at 4.5% after today's meeting. The EURCZK is holding slightly higher this week at 25.42. The other currencies in the region have also weakened since the beginning of the year. The long-term yields have moved lower more visibly this week as markets are positioning for the rate cut in the US in September. In the US, the key interest rates were left unchanged at the meeting of the FOMC on Wednesday. However, according to Powell, if the data continues to be good, a rate cut in September would be on the table.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.