CEE Macro Weekly: Low inflation, hawkish stance

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Please note that the next issue of CEE Macro Weekly will be released on Friday, August 21.

TOP MACRO THEME(S):

• Core inflation is the CNB’s core interest (p.3) – Czech CPI inflation accelerated to 1.7% y/y in July from 1.5% y/y in June, in line with expectations. Core inflation also likely rose to around 2.9-3.0% y/y. Elevated core inflation was a key factor behind the CNB’s June rate hike. In August, the CNB kept rates unchanged. We expect rates to remain stable through year-end, although risks are tilted to the upside.

WHAT ELSE CAUGHT OUR EYE:

• ROM: Fitch affirmed Romania’s long-term rating at BBB− with a negative outlook, highlighting the problem of high twin deficits – the fiscal deficit and the current account deficit. The agency expects the fiscal deficit to decline to 5.9% of GDP in 2026, from 7.9% of GDP in 2025 and 9.3% of GDP in 2024. However, it warned that political fragmentation limits the predictability of medium-term consolidation and that the pace of fiscal consolidation will slow ahead of the parliamentary elections in 2028. At the same time, Fitch estimates that general government debt will rise above the median for BBB-rated sovereigns, reaching 64.5% of GDP in 2028. The current account deficit is expected to remain close to 7% of GDP, alongside an increase in net external debt. The agency expects GDP to contract by 0.6% this year. Factors that could lead to a rating downgrade include weak consolidation, rising debt and political instability, as well as the impact of these factors on external financing. A rating upgrade would require a sustained reduction in the deficit, debt stabilisation, a reduction in external imbalances and the maintenance of a stable economic policy.
• POL: Finance Minister A. Domański said that the ministry is considering raising the second PIT threshold, with the 32% rate currently applying to annual income above PLN 120,000, as early as 2027. As regards increasing the tax-free allowance, currently PLN 30,000 per year, no specific arrangements have yet been made – decisions on this matter are expected in the coming weeks, during work on the budget, which should be presented this month. We estimate that the combined cost of raising the second threshold to PLN 140,000 and increasing the tax-free allowance to PLN 60,000 would amount to approximately 1.5–1.6% of GDP.

THE WEEK AHEAD:

• This week, attention in the CEE region will focus on 2q26 GDP growth data. On the one hand, in Poland (Thursday) we expect growth to accelerate to 4.1% y/y from 3.5% y/y in 1q26, while on the other hand, in Romania (Friday) we expect the GDP contraction to deepen to −1.4% y/y from −1.2% y/y in the previous quarter.
• The National Bank of Romania will decide on interest rates on Monday. We expect rates to remain unchanged, while potential monetary policy easing could come later in the year.
• Inflation data will also be important. On Tuesday, the revised CPI inflation reading will be released in Czechia (preliminary: 1.7% y/y). On Wednesday, July CPI inflation data for Romania will be published, and we forecast a decline to 7.9% y/y, mainly due to a statistical base effect. On Thursday, the final CPI inflation reading for Poland will be released (preliminary: 3.0% y/y), followed by core inflation on Friday, which may have accelerated to 3.1% y/y in July.