CEE: Delayed pass-through from energy into inflation
On the radar
- Inflation in Czechia was confirmed at 2.1% y/y in May.
- Industrial output declined by -3.2% y/y in April in Slovakia and grew by 4.4% y/y in Slovenia
- Today, Serbia’s central bank holds a rate setting meeting at noon CET.
- ECB interest rate decision is due 2 PM CET.
Economic developments
A flare-up in geopolitical tensions lifted oil prices again as the US President Donald Trump pledged fresh strikes on Iran after accusing the country of dragging out talks on an interim peace deal. We take another look at the oil price impact on inflation. Today our focus goes to correlation between HICP in the region and oil and gas prices. Contemporary correlation (current inflation and current oil and gas prices) is much lower compared to the “delayed correlation” inflation and delayed oil and gas prices by 12 months. In details, headline HICP inflation is only modestly correlated with contemporaneous oil and gas price dynamics, at around 12% for oil and 24% for gas. However, the relationship strengthens markedly when oil and gas is lagged by 12 months, with correlations rising to approximately 62% for oil and 91% for forward gas prices. This points to a pronounced delayed pass-through from energy markets into consumer prices, particularly from gas, reflecting the role of regulated tariffs, contract structures and second-round effects.
Market movements
Today, all eyes are on ECB as it will announce interest rate decision in the afternoon and interest rate increase is broadly expected. Locally, Serbia’s central bank will hold a rate setting meeting and stability of rates is broadly expected. In Czechia, central banker Jan Prochazka claims that there is 50% percent chances for interest rate to remain stable and 50% chances for rate hike in his opinion. Rate hike would not automatically mean a new tightening cycle. That is quite opposite to Poland’s central bankers that began to send dovish signals. After Maslowska’s comments, Dabrowski claims there is no need to hike rates as inflation eases and he actually would see room for rate cut if global tensions ease. Romania’s President Dan urged parties to prioritize national interest over electoral calculations and warned of a sharp economic downturn risk. He calls to back designated PM Tomac as talks in the past days failed to deliver a majority for him in parliament. Finally Serbia’s President Aleksandar Vucic says he may step down before his second and final mandate expires next year, and possibly retake the post of prime minister following early elections expected in the fall.
Author
Erste Bank Research Team
Erste Bank
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