CEE Macro Weekly: CPI keeps falling across CEE

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TOP MACRO THEME(S):

• Wind of change in the energy sector (p.3) – Poland’s energy transition has accelerated in recent weeks thanks to major projects – the expansion of the Kleczew Solar & Wind farm and the development of the Baltic Power wind farm.

WHAT ELSE CAUGHT OUR EYE:

• POL: CPI inflation fell to 2.5% y/y in June, down from 3.1% y/y in May, confirming the flash estimate. The decline in inflation was driven mainly by fuel and food prices. Core inflation eased to 3.0% y/y in June from 3.1% y/y in May, while services inflation slowed to 5.4% y/y from 5.7% y/y. In June, Poland recorded food price deflation for the first time since 2015 (–0.2% y/y, vs −0.3% y/y in the flash estimate). This decline was driven primarily by vegetable and fruit prices. Fuel prices rose by 5.3% y/y in June, but fell by 7.4% m/m, despite the restoration of the standard excise duty from mid-month. The reinstatement of the previous VAT rate at the end of June resulted in a price increase of around 14% in the first week of July. Average monthly fuel prices in July may rise by around 13% m/m, also due to higher oil prices on global markets following the escalation of the conflict in the Middle East (although the government has simultaneously signalled that it could again consider intervention if prices increase sharply). In the coming months, we expect inflation to rise toward the upper bound of the NBP target range (3.5%).
• ROM: CPI inflation eased to 10.42% y/y in June from 10.85% y/y in May, coming in slightly below expectations. The decline was driven by slower annual growth in food prices (5.8% vs 6.8%) and fuel prices (16.0% vs 19.2%). At the same time, growth in services prices accelerated (to 13.7% y/y from 13.5% y/y) as did energy prices (to 35.2% y/y from 31.4% y/y). The central bank expects inflation to decline markedly in 3q26, mainly due to base effects related to the fading impact of energy price liberalisation and indirect tax hikes introduced in the summer of last year as part of the fiscal consolidation programme. We continue to expect the NBR to keep interest rates unchanged in the coming months, with limited room for a 25bp cut emerging in 4q26, provided that underlying inflationary pressures indeed moderate.
• POL: Polska 2050 party wants to raise the second PIT threshold from PLN 120k to PLN 140k, and finance the change through higher taxation of large corporations and banks, a higher excise duty on alcohol, and tighter tax enforcement. K.Pelczynska-Nalecz (Minister for EU Funds) said that A.Domanski (Finance Minister) did not challenge the proposal on substantive grounds, but the decision would require the consent of the entire coalition.

THE WEEK AHEAD:

• This week, we will receive the full set of June activity data from Poland. Production and consumer sectors likely maintained solid growth, while GDP dynamics in 2q26 may have been close to the rate recorded in 1q26.
• In Hungary, the MNB is likely to cut interest rates again, as June CPI surprised on the downside and Governor M.Varga suggested that further rate cuts could follow during the summer.