CEE Macro Weekly: It’s a bit chilly in the data

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TOP MACRO THEME(S):

• Good news from labour market, not so great from industry (p. 3) – Set of monthly data from Poland for February align with our long-standing view that developments on the labour market should support disinflation this year, justifying rate cuts.

WHAT ELSE CAUGHT OUR EYE:

• POL: Key measure of core inflation (CPI less food and energy prices) stood at 3.7% y/y and 3.6% y/y in January and February, respectively, marking a noticeable decline against December (4.0% y/y). Readings were lower than widely expected, suggesting that core inflation in 1q25 may be 0.3-0.4pp lower than in the latest NBP projection, which together with lower than expected CPI inflation gives strong ground for reducing rates this year.
• CZE: CNB board member, J.Seidler, expressed his preference for keeping interest rates stable on the next MPC meeting (March 26). He also assessed that market expectations of 50bps reduction in the next following 12 months is fair. J.Seidler expressed caution with regard to food prices, which continue to rise, as well as defence spending in Europe, which may generate additional inflationary pressure. Another board member, J.Kubicek, also favoured a pause on the next meeting amid high inflationary pressure and the policy rate approaching its neutral level, which he sees at 3.50%, adding that the target level in this easing cycle may be slightly lower. He added that the current rate path in the CNB’s projection may be too optimistic, if wages continue to rise at a pace seen in 2024. Preference for a pause is in line with our expectations as we assume that the CNB will keep interest rates unchanged in March and may deliver a cut later on, in May.
• HUN: Economy Ministry, M.Nagy, announced that the government will give banks between one to two weeks to decide on the way to reduce their fees. Otherwise the government may impose regulation, which may include a cap on fees. Announcement was made in relation to elevated inflation (5.6% y/y as of February). Previous step to combat inflation included imposing a cap on retailers’ margins with regard to some food products. M.Nagy recently stated that the margin cap resulted in an average 16% reduction in prices of approx. one thous. food products and was stronger than 10% reduction expected by the government.
• CZE: Government approved a CZK 20bn (approx. EUR 800m) additional support to renewable energy sector. Beforehand it got a green light from the European Commission. Minister of Finance assured that it will not affect fiscal targets for 2025. Financial scheme will be directed at enhancing the net-zero economy goals by supporting production of i.a. batteries and solar panels.

THE WEEK AHEAD:

• Monetary policy will be in the spotlight next week. CNB will decide on interest rates on Wednesday, and we expect no change in the Czech monetary policy parameters. The board will likely prefer to take more time to assess the impact of external risks (including US tariffs and fiscal expansion in the EU). While a cut in Czechia cannot be entirely ruled out, any change in rates seems out of the question in Hungary (Tuesday). Inflation remains elevated and has surprised on the upside, while retailers’ margin caps will take some time to fully translate into inflation. More details in the calendar on p.4.

Drukuj