CEE: Inflation strikes back, again
A heavy calendar in the Central and Eastern Europe region is again led by inflation numbers. On Monday, we will see data from the labour market, foreign trade and industrial production in the Czech Republic. The monthly numbers show a slowdown in the economy, but we have also seen some positive surprises that reduce the risk of a technical recession in the second half of the year. Inflation in Hungary will be published on Tuesday. Peter Virovacz expects a further increase from 11.7% to 13.3% year-on-year, slightly above market expectations, also supported by tax changes. In the Czech Republic, inflation will be published on Wednesday. Again, we expect a new record at 18.5% YoY, well above market expectations, mainly due to the announced energy price hikes. On Thursday, we will see inflation in Romania. Valentin Tataru forecasts a drop in YoY terms from 15.1% to 14.6%, which would mark the first decline from the peak. On Friday, the current account in Poland and the Czech Republic will be published, we will see the final estimate of Polish inflation and the Czech National Bank will publish minutes.
In the FX market, on the floating side of the CEE region, the Polish zloty and Hungarian forint have strengthened significantly in the past week and, as we mentioned on Wednesday, it is a bit too much for our liking. In both countries, market interest rate expectations have since fallen further, driving rate differentials to their lowest levels since mid-June in Hungary, and April in Poland. Moreover, Friday's US jobs report supported the dollar, which is also not playing into the region's hands. Thus, in our view, the only thing that saved the zloty and forint from losses at the end of last week was the positive market sentiment and risk-on mode. However, we expect both currencies to be weaker this week. We see the forint as more vulnerable, with our target at 399 EUR/HUF and the zloty at 4.75 EUR/PLN for the days ahead. The koruna is still liquidating short positions after Thursday's CNB meeting which made it clear that the end of FX intervention is not on the table. However, we expect the koruna to return to 24.60 EUR/CZK soon. The Romanian leu remained untouched after Friday's central bank meeting and is still enjoying its trip to stronger levels around 4.925 EUR/RON - a move that we think is temporary.