CEE Macro Weekly: Inflation is not as scary as it looks

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TOP MACRO THEME(S):

• Puppet Theatre (p.3) – In our latest quarterly report, we update our macroeconomic forecasts and assess Poland’s role in an increasingly complex geopolitical environment. The economy continues to show notable resilience, supported by investment, while the main challenges are shifting towards inflation.
  
  

WHAT ELSE CAUGHT OUR EYE:

• POL: CPI inflation rose to 4.0% y/y in September from 3.4% y/y, slightly below expectations (4.1%). The acceleration was driven mainly by fuel (+36.1% y/y) and energy prices (+4.9% y/y), while we estimate that core inflation eased to 3.0-3.2% y/y from 3.3% y/y, suggesting little evidence of broad-based second-round effects. After more than a year around the NBP target, inflation moved above the upper bound of the target range and is likely to remain there for several months, before potentially returning within the range from March 2027.
• POL: The government’s programme of temporary fuel-tax cuts is set to lower inflation path. Assuming unchanged oil prices, retail fuel prices could fall by around 11-13%, reducing CPI inflation by an estimated 0.6-0.7pp. Under the current regulation, the scheme remains in force until December, increasing the risk of renewed inflation volatility thereafter. A softer inflation outlook and easing core inflation reduce the likelihood of rate hikes in Poland.
• POL: The government has adopted its Debt Management Strategy for 2027–2030. General government debt (GG, the EU/ESA definition) is projected at 67.6% of GDP in 2026, 69.3% in 2027 and 76.6% by end-2030. Public debt under Poland’s domestic statutory definition (PDP), which is narrower than the EU measure, is expected to reach 55.3% of GDP in 2026 and rise to 59.2% in 2029 before gradually declining. PDP under the special statutory definition used for the prudential threshold is expected to exceed 55% of GDP in 2028, triggering the corresponding fiscal adjustment measures from 2030. GG deficit is projected to narrow gradually from 7.1% of GDP in 2026 to 4.2% of GDP in 2030. Rapidly rising public debt will continue to weigh on Poland’s sovereign rating.
• ROM: Romania’s parliament rejected S.Muresan’s government, which secured just 182 votes against the 233 required. President N.Dan will now begin another round of consultations. Possible options include re-nominating the prime minister, forming a government with PSD participation, or holding early elections, which the president has so far opposed. Earlier Fitch warned that a prolonged political crisis could result in a downgrade of the country’s rating to non-investment grade. The decision is due later today.
  
  

THE WEEK AHEAD:

• Central banks will take centre stage this week. In Poland, we expect the MPC to keep rates unchanged, with attention on easing core inflation, fuel-tax changes and external risks. While the outlook could be affected by the post-meeting communication. In Romania, falling inflation and weak activity are still unlikely to outweigh external risks enough to allow rate cuts.
• September inflation data will also be in focus. We expect CPI inflation to rise to 2.3% y/y from 1.9% in Czechia and to 1.7% y/y from 1.3% in Hungary, in both cases driven mainly by higher fuel prices.