KBC Market Research Desk
KBC Bank
Polish and Hungarian asset prices faced headwinds last Friday as the US dollar strengthened sharply. Not only the forint and the zloty weakened against the euro, but also government bonds (10Y) posted losses and local stocks got under pressure, too. Although this week’s FOMC meeting may raise pressure on the CE currencies in the next couple of days, solid economic growth combined with negative inflation (in the case of Poland and Hungary) and ECB’s QE should keep regional assets attractive.
Polish February inflation came out on the downside of expectations. Prices fell by 0.1% M/M, pushing deflation to a new high of 1.6 % Y/Y. The main structural surprise regarding the price shift refers to M/M stagnation of food prices. Inflation has probably hit its bottom in February but despite that, Polish prices may fall more than 0.5 % in 2015. While this is good news for consumers, the question remains whether – in the environment of persistently stagnant or falling prices – employees can succeed in negotiating a similarly rapid wage growth this year as they did in the year before.
As for the fresh Czech PPI, producers’ prices fell for the sixth consecutive month in February. Unlike in the previous months, the last decline was driven by other components than oil prices; for example, by prices set in the car industry (which has been among key drivers of the Czech economy). In year-on-year terms, PPI continues to decline, primarily thanks to dropping oil, food and energy prices. With respect to the fact that prices of other items rise only slightly, the latest PPI figures do not suggest any significant inflation upturn in the pipeline.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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