February’s inflation falling into tolerance band

Erste Bank Research Team Erste Bank

On the radar

Inflation in Slovakia (local statistics) eased to 3.4% y/y in February.
Industrial output growth in Czechia remained unchanged in real terms in January.
Inflation in Poland will be published at 10 AM CET and the consensus is at 3.2% y/y.
Croatia will publish final reading of February inflation (flash at 4.1% y/y) at 11 AM CET.
In the afternoon, trade data will be releases in Poland.

Economic developments

In Czechia, the headline inflation in February reached the central bank's target of 2%. In Hungary and Poland, the inflation rate fell (or is expected to fall in the case of Poland) within the tolerance band around the central bank's target in February. In other countries, the inflation rate still remains outside of the tolerance band, most notably in Romania where the February's figure of 7.23% y/y came in above market expectations. Furthermore, Romania is likely to be the only country in the region where inflation will not return to the target in 2024 (based on our revised end-year forecast of 4.8% y/y in December). In Serbia, the central bank Governor Tabakovic stated that the central bank sees price growth returning to the 1.5%-4.5% tolerance band around the middle of this year. However, in the second half of the year, it will move in different directions. Croatia, Romania, and Serbia should see inflation falling throughout the year. On the other hand, in Czechia, Hungary, and Poland, inflation is expected to be higher compared to the beginning of 2024.

Market movements

The Hungarian forint has recovered some losses from the beginning of the week and is now only marginally weaker against the euro compared to Monday. Hungary has delayed the controversial change to the legislation regarding the central bank that could have supported the currency. Conversely, the Czech koruna and Polish zloty have strengthened from the beginning of the week. Another member of the MPC in Poland, Kochalski, commented that he would only see space for a rate cut in Poland in March 2025 at the earliest, as opposed to Wnorowski who may see such a possibility already at the end of 2024. Long-term yields have risen throughout the week.

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Erste Bank Research Team

Erste Bank

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