• Inflation numbers for April have been released for Hungary, the Czech Republic and Romania.
  • Czech inflation was lower than expected at 1.8% y/y (consensus 2.0% y/y), representing a decline compared with the 2.3% y/y recorded in March.
  • Romanian inflation was in line with consensus expectations at 6.5% y/y, and was down slightly compared with 6.7% y/y in March.
  • Inflation in Hungary surprised on the upside at 3.4% y/y in April; consensus had expected inflation to be flat compared with March, at 2.9% y/y.

Details

In the Czech Republic and Romania inflation came out more or less in line with the general expectation and confirmed that inflation is beginning stabilising in most of the CEE region, with the exception of Hungary, where inflation today surprised on the upside caused mostly by higher fuel prices.

Market reaction

Rates and yields up, neutral on HUF after higher-than-expected inflation in Hungary. Czech inflation was rather neutral for the CZK.

Assessment & Outlook

We are beginning to see clear signals that inflation in general is beginning to bottom out in most of the CEE countries, with the exception of Hungary where VAT hikes due in July will add to inflation going forward. Furthermore, today’s higher-than-expected inflation in Hungary is obviously an unpleasant surprise. The economy is in deep recession and inflation is rising. The rise, however, is mostly due to higher fuel prices – so it is clear that it is supplyside factors pushing up inflation, and with the economy in recession there are no upward pressures on inflation from the demand side of the economy. We have revised our inflation forecast for Hungary upwards and now expect full-year inflation to be 4.8% in 2009. The upside surprise on inflation and our new revised inflation forecast completely closes the door for rate cuts anytime soon despite the deep recession. In contrast to Hungary, Czech inflation should continue to inch down in the coming months and is likely to bottom out in July and increase slightly afterwards. We have lowered our Czech inflation forecast for this year slightly and now expect full-year inflation to be 1.7% in 2009. A low inflation environment still leaves some room for monetary easing and if we see significantly worse-then-expected Q1 GDP numbers and further deterioration of the Czech economy, we cannot rule out further monetary easing going forward. While looking at Romanian inflation and monetary policy we see further monetary easing in the coming months. However, it should be noted that we expect inflation to remain at the present levels in the coming months, but start to head downwards towards the end of the year. We expect average inflation of 6.7% in 2009 and 4.8% in 2010 in Romania.