CEE Macro Weekly: Ambiguous inflation projection

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TOP MACRO THEME(S):

• Hawkish projection for doves (p. 3) – At first glance it seemed like the latest NBP inflation projection could significantly postpone the discussion on interest rate cuts. However, we view the details of the projection and its assumptions as making our previous judgments still valid. In addition, February inflation surprised on a positive note.

WHAT ELSE CAUGHT OUR EYE:

• CEE: Germany plans to invest 500bn EUR in infrastructure over 10 years and debates on allowing for higher military spending via exclusion from debt break. These investments could boost GDP in Czechia by 0.3% annually, in both Poland and Hungary by 0.2%, and in Romania by 0.1%, so the impact will be minor. Additional EU and domestic defence industry investments may also follow.
• CZE: CNB deputy governor E.Zamrazilova said she sees room for two more 25bps cuts in 2025. She expects that some military spending will be diverted to other areas, which could be inflationary. E.Zamrazilova views US-induced trade war as rather anti-inflationary in the long term, as US tariffs may redirect cheap Chinese export to Europe.
• HUN: The government will impose 10% margin cap on retailers for 30 essential food items from Mar 17 until end of May, with a possible extension. The decision was driven by accelerated food inflation (which turned out to equal 7.1% y/y in Feb.). Economy Minister M.Nagy stated that the cap will reduce prices for 30 food items by 10-15% and lower CPI inflation by 2pps. The first impact is expected in April at the earliest. M.Nagy also pointed out that, according to high frequency data, food inflation picked up to 9-10% in Mar.
• HUN: Economy minister M.Nagy announced that draft 2026 budget will be submitted to the Fiscal Council around Apr 20. The budget deficit target will be 3.5% GDP, representing a fiscal loosening compared to the initially planned 2.9% GDP.
• HUN: Newly elected MNB governor M.Varga marked that monetary policy should remain disciplined, consistent and patient, signalling continuity with the previous policy aimed at calming markets and supporting HUF.
• POL: Minister of development funds K.Pelczynska-Nalecz stated that the power price cap should be extended until 4q25 rather than lifted at the end of 3q25.
• ROM: The Constitutional Court rejected challenges to the Central Election Bureau decision to invalidate right-wing populist C.Georgescu’s candidacy in presidential election (May 2025). As a result C.Georgescu will not be allowed to run, despite winning first round of cancelled elections in Nov. 2024 and maintaining ca. 40% support.

THE WEEK AHEAD:

• Next week will focus on data from Poland’s foreign and real sectors. The CAB surplus (% GDP) is expected to continue diminishing, with industry still waiting for recovery. The brightest performer could probably be construction sector. On the labour market front, we anticipate continued moderation in wage growth. Core inflation for Jan.-Feb. will complement full CPI data. The scope of economic figures for the rest of the CEE region will be more modest, with only CAB data coming from Czechia and Romania.

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