Flash inflation and GDP structure across CEE

This week is all about flash inflation for August and the 2Q26 GDP structure in most CEE countries. As far as inflation is concerned, Poland, Slovenia, Croatia, Slovakia (HICP release) and Czechia will show flash inflation estimates throughout the week alongside the Eurozone HICP releases, where a marginal increase is expected. The GDP structure should not bring any major surprises in the headline GDP growth dynamics for 2Q26. It will shed more light on the extent to which the growth was driven by domestic demand, as opposed to the contribution of net exports. Other than that, the performance of the retail and/or industry sectors in July will be published in Serbia, Croatia, Hungary, Romania and Slovakia. The manufacturing PMIs for September will be released in Czechia, Hungary, Romania and Poland, which may draw some market attention. Finally, trade data is due in Serbia and Slovenia, producer prices will be released in Hungary and Romania, and Czechia is scheduled to publish wage growth.

FX market developments

Global developments were the key drivers of the FX market in the region (Jackson Hole speech by Warsh, fears of Russia escalating the conflict in Ukraine). Toward the end of the week, CEE currencies have weakened more visibly. As for local developments, the Hungarian central bank lowered the key policy rate by 25 basis points to 5.5% at the last meeting. We believe further cuts are in the pipeline, as inflation remains contained. The key issue after the last central bank meeting, however, is the announcement of the planned change of the inflation target in Hungary as a step toward Eurozone membership. We do not expect to hear details in September, but autumn was declared to be the time when the evaluation of the inflation target will be concluded. While Hungary eases monetary conditions, for Czechia, we adjust our interest rate outlook and expect one more rate hike so that the key interest rate is at 4% at the end of the year. While inflation is close to the central bank target at the moment, we expect headline CPI to rise toward the end of the year. The ECB tightening monetary conditions also supports a scenario of a rate hike in Czechia. Last but not least, demand and wage pressures are also seen by central bankers as favorable for a rate hike scenario.

Bond market developments

Last week, fixed income markets remained in a wait-and-see mode ahead of Friday’s speech by Fed Governor Kevin Warsh. Similar to FX markets, CEE government bonds were negatively affected by the CIA director’s visit to Moscow, which investors interpreted as a sign of a potential escalation of Russia’s military operations in Ukraine or along NATO’s eastern flank. Czech government bond yields moved higher, as announced increases in electricity and gas prices are expected to push inflation up at the beginning of next year and, together with the recent loosening of fiscal rules following parliament’s override of the presidential veto, justify a modest tightening of monetary policy. Romanian government bonds also came under some selling pressure amid political uncertainty and delays in meeting RRF-related milestones. Nevertheless, demand at recent bond auctions remained solid and the Treasury still appears to have sufficient alternative funding sources, limiting concerns over market access.

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