Central Europe

Research evidence excerpt

Central Europe

, expansionary fiscal policy, rising

house prices, a tight labour market and rapid wage growth. Figure 1: Petrol prices in CEE (local currency)

Partly offsetting this, the statement notes that recent data 23-Feb = 100

CZ HU PL RO point to weaker-than-expected growth relative to the May 130

projection. The press conference was rather uneventful, with 125

the Governor providing no guidance, while indicating the

board keeps all rate options open.

The statement notes that, despite the de-escalation in the Mid-

dle East, the central bank will continue to monitor price

impacts and aim to prevent the shock from feeding into high-

95 er inflation expectations. If the agreement holds in the coming

23-Feb 09-Mar 23-Mar 06-Apr 20-Apr 04-May 18-May 01-Jun

Source: European Commission, J.P. Morgan weeks, the balance of risks shifts toward the bank being less

inclined to tighten further, as the option value of waiting

If prices now fall, the largest disinflationary impulse should increases. Lower oil prices also reduce the likelihood of pass-

accrue to the countries that intervened least – most notably through to other components of the basket or into broader

the Czech Republic and Romania – while the direct CPI pricing and wage-setting behaviour. In our view, the key issue

impact in Poland and Hungary is likely to be limited. In those is less the oil shock itself – its duration and magnitude – than

latter cases, the main benefit would come through fiscal relief the starting conditions, which were already pointing to the

as household-support measures are unwound or become cost- need for a tighter policy stance, including through persistently

less. The second channel is sentiment. Greater certainty above-target core CPI, solid demand, elevated wage growth