CEE: Inflation expected to ease as Oil price declines

On the radar

• Industrial output growth in Romania declined by -3.1% y/y.
• Inflation rate in Slovakia eased to 3.8% y/y in May, In Poland it was confirmed at 3.1% y/y while in Croatia at 5.2% y/y.
• In Romania, year-to-date current account deficit increased to EUR -7.98 billion.
• Today, Czechia releases producer prices in May and Slovakia industrial orders at 9 AM CET.
• In the afternoon, Poland publishes core inflation.

Economic developments

Today, we look at the oil price development and its expected contribution to inflation until the end of the year. The prospects of the peace deal between the US and the Iran combined with opening the Strait of Hormuz drove the oil price visibly down in recent days. Brent oil price is close to USD 80 per barrel, much lower compared to the peak at USD 118 per barrel seen in April or May. We have been showing the graph with oil price development several times this year, but the fall of oil price makes us to look at it yet again. The recent price levels remain elevated compared to the beginning of the year, resulting in ongoing positive contribution to inflation throughout 2026. If the price of oil would stay around current levels until the end of the year, it would translate into oil price growth between 20% and 30% in year-on-year basis. The positive impact is however, incomparably smaller to situation from month ago. Although inflation is likely to remain higher to what we would have expected at the beginning of the year, we should see gasoline prices going down in coming weeks and thus easing overall inflation pressure in coming months. Such development should give central banks in the region more confidence that wait-and-see strategy has been a right choice. The chances for substantial second-round effects also fade away with dropping commodity prices.

Market movements

On the back of the news about expected resolution of the Middle East conflict, we should see risk-off mode dominating. However, ECB President Lagarde stated that the ECB has begun to see "second-round effects" from elevated energy prices spreading to other parts of the economy, reinforcing the hawkish stance. In the region, Hungarian forint strengthened against the euro as EURHUF declined toward 350. EURCZK holds close to 24.16 as expectations for rate hike at the upcoming meeting prevent EURCZK from falling most likely. EURPLN is at 4.25. Poland’s central bank is likely to keep interest rates stable for longer period of time according to the central banker Kotecki. In Romania political developments focus on new Prime Minister. Leader of Liberal Party in Romania Bolojan said that the party will not back the nomination of Vestea and urge President to call new talks on government. Romania sold government papers worth RON 975.1 million maturing in 2030. In Slovakia, ARDAL raised EUR 649m at the June auction across four maturities (2029-2047) at average yields 2.85-4.26%. Slovakia has now covered roughly 65% of its 2026 financing needs by mid-year.

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