CEE Macro Weekly: The moon doesn't care for barking dogs

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TOP MACRO THEME(S):

• The caravan moves on (p.3) – We have updated our macroeconomic forecasts for Poland and major economies (the US, euro area, and China). Despite the global shock, changes to our forecasts for Poland are not revolutionary, and the economy is once again surprising with its resilience. In short, the caravan moves on.

WHAT ELSE CAUGHT OUR EYE:

• POL: CPI inflation fell to 2.5% y/y in June, down from 3.1% y/y in May, coming in below consensus (2.8% y/y) and close to our forecast (2.6% y/y). The main downward driver was fuel prices, which – despite higher excise duty –fell by 7.4% m/m, with their annual growth slowing to 5.3% y/y from 12.3% y/y in May. Food prices were a significant surprise, declining by 0.7% m/m (after a 0.1% m/m fall in May) and coming in 0.3% lower than a year earlier, marking the first year-on-year decline since 2015. According to our estimates, core inflation may have eased slightly from 3.1% y/y in May. Inflation returned to the NBP’s point target (2.5%) in June, but we expect it to rise again in July. On 1 July, the government programme limiting fuel prices expired, following the earlier reinstatement of excise duty. This week, the fuel price caps were lifted and the standard VAT rate on fuels was restored (23% vs 8%). We estimate the maximum impact of these changes on CPI inflation at around 0.7pp. Beyond regulatory changes, food prices are also likely to push inflation higher in the coming months, as drought and difficult weather conditions in spring are expected to weigh on this year’s fruit and vegetable harvest. In our view, inflation will remain close to the upper end of the NBP target range (3.5%) through the end of the year, but will return to the 2.5% point target in 2027.
• CZE: The Ministry of Finance proposed abandoning the current soft cap on fuel prices, effective from July 20. The rationale is that oil prices have stabilised and returned to pre-war levels, meaning that a maximum level for fuel prices is no longer needed.

THE WEEK AHEAD:

• This week brings inflation figures for June from Czechia and Hungary - CPI numbers are due on Tuesday. For Czech inflation we expect a drop to 1.8% y/y from 2.1% y/y in May and in case of Hungary we predict stabilisation at 1.8% y/y.
• The focus of attention will be also on monetary policy decisions in Poland and Romania on Wednesday. In line with consensus, we expect that the Polish MPC will keep the NBP reference rate at 3.75%, while the National Bank of Romania will maintain the policy rate at 6.50%. In our view, a resumption of monetary policy easing is likely to come sooner in Romania, in late 2026, while in Poland only in mid-2027.