CEE Macro Weekly: Inflationary surprises

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TOP MACRO THEME(S):

• A hawkish start of 2025 in Poland and Romania (p. 3) – The central banks of Poland and Romania adopted a hawkish stance and confirmed that they are the least inclined in the CEE region to lower interest rates.

WHAT ELSE CAUGHT OUR EYE:

• CEE: Inflation data in December surprised on a positive note, with the exception of Hungary. In the rest of the CEE, readings were lower than expected. In both Poland and Romania, inflation was unchanged against November, amid acceleration in Czechia and Hungary, driven mainly by increase in food price growth. The average inflation in 2024 equaled 3.6% in Poland, 2.4% in Czechia, 3.7% in Hungary and 5.6% in Romania. Looking at the current core inflation momentum (annualised) price dynamics remain elevated, especially in Romania, with a certain degree of anchoring to inflation target observed in Czechia (more details on p.2).
• HUN: Deputy Governor M.Patai was the only MPC member who backed a 25bp cut in December, according to the minutes from that meeting. Services prices remain the main concern of the MPC. Some members underlined that the extent of repricing in services has been above average in recent months and prices in this category should be monitored closely (in December services inflation slowed down a bit). Members of the MPC were unanimous about the importance of maintaining financial market stability, reiterating the need for careful and patient approach to monetary policy, which supports our expectation that the next cut will take place no earlier than in March.
• HUN: Economy Minister M.Nagy said that the finance minister will no longer serve as a simple accountant, but will act as an economic politician. This comment was made in relation to a planned merger of finance and economy ministries and M.Nagy is about to be in charge of the combined institution. It is worth pointing out that under current ministerial design, finance minister had a veto right on the decisions of the economy ministry, as he was the chairman of the budget working group. M.Nagy declared his commitment to fiscal discipline. He assessed that economic recovery started in September 2024 and 2025 will not be as volatile as the previous year. He expects disinflation to resume in February and consumer price growth should return to around 3% in 2h25.
• HUN: The European Commission accepted Hungary’s revised mid-term fiscal consolidation plan, which assumes a reduction of budget deficit to 3.6% in 2025 and 1.5% in 2028.
• ROM: Nominal net earnings growth accelerated to 13.1% y/y in November, yet it slowed down in real terms, to close to 8% y/y. Wage growth in Romania remains among the strongest in the CEE, backing strong consumption and hindering fight against inflation.

THE WEEK AHEAD:

• The macroeconomic calendar for next week focuses on data from Poland. These will be the first readings of economic activity for December in the CEE region. We expect that, apart from construction, industrial output and retail sales will show signs of a recovery in 2025. On the labour market front, we expect an acceleration of wages growth, backed by payout of bonuses in mining sector amid y/y fall in employment.