Mixed signals for future inflation path

On the radar

• Final inflation number in Poland was confirmed at 4.9% y/y in September.

• Today, at 9 AM CET September’s producer prices will be released in Czechia.

• At 11 AM CET final inflation for September will be published in Croatia.

• In the afternoon, Poland will release core inflation number for September.

Economic developments

As the final inflation numbers for September continue to flow in, we look at the external factors that seem to be a mixed bag. The Food Price Index has increased in recent months, and the upward trend suggests inflationary pressure in the coming quarters from food items. In the region, in particular, recent flood damages may strengthen such a trend. As for the oil price development, recent levels still guarantee the negative annual growth rates of oil price that should limit the positive contribution of that item in the final inflation number. Sluggish recovery supports lower oil prices as well. As for the inflation development, we expect inflation to rise further until the end of the year due to unfavorable statistical effects and regulatory changes (mostly regarding energy prices).

Market developments

The Czech koruna and the Hungarian forint have been strengthening against the euro since the beginning of the week, while EURPLN remains at 4.29. The strengthening of the koruna comes after higher-than-expected inflation data that hold off monetary easing in the remainder of the year. The long end of the curve has been moving down over the last few days ahead of the ECB meeting (due Thursday). Poland tapped the international bond market, selling EUR 3 billion of 7Y and 15Y government papers. The Ministry of Finance also released information that the year-to-date budget gap reached PLN 107.3 billion, which is 58.3% of the annual plan. In Slovakia, the announcement of an investment worth EUR 170 million arrived as Hyundai Mobis plans to expand production and build an EV parts plant.

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