CEE: Fuel inflation risks persist

Erste Bank Research Team Erste Bank

On the radar

PPI for Slovakia is set to be released today at 9:00 CET.
Retail Sales for Slovenia will be released today at 10:30 CET with anticipation for a similar pace as in May.

Economic developments

Despite the recent moderation in oil prices, the annual comparison is becoming unfavourable, suggesting that retail-fuel inflation could strengthen through the remainder of the year. As the chart illustrates, even if crude prices stabilise around current levels, the lower base from late 2025 would keep year-on-year oil price growth positive until year-end, supporting a positive fuel contribution to headline inflation. This helps explain the policy focus across the region. Croatia has already extended its retail fuel price regulation for another two weeks, partially offsetting the increase through cuts to excise duties and retail margins, with the new maximum prices rising by €0.08/l for petrol and €0.16/l for diesel. Following Bloomberg’s reporting on Poland’s fuel-price cap, the government has signalled that regulated prices could return for the final two weeks of the summer holidays if oil prices rise again, while Romania’s Senate has approved a temporary variable excise mechanism for diesel. This underlines concern that, although spot prices have eased from previous months’ peaks, unfavourable base effects could keep motor fuels adding to headline CPI over the coming months.

Market movements

CEE fixed-income markets reacted positively to lower oil prices following the pause in the U.S. military campaign against Iran. The Hungarian forint strengthened back toward the 360 EUR/HUF level, although further gains were somewhat constrained by fears of a potential rate hike in the U.S. MNB Deputy Governor Barnabás Virág commented yesterday on the inflation outlook, noting that inflation could stay close to 2% in the coming months. Across the CEE region, 10-year government bond yields declined by around 10–20bp yesterday, with the largest move recorded in Hungary. In Romania, the Ministry of Finance raised RON 700m through the reopening of a 5-year government bond issue at an average accepted yield of 6.64%, virtually unchanged from the result achieved at the auction of the same bond one month earlier.

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Erste Bank Research Team

Erste Bank

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