Price levels and spending on housing and food in CEE

On the radar

• Today, Hungarian central bank is holding a rate-setting meeting and we expect rate cut.
• In Poland, real retail sales grew by 3.0% y/y in May below market expectations.
• Producer prices increased by 4.8% y/y in May in Poland.
• Wage growth accelerated to 5.8% y/y in May, while Poland’s employment declined by -0.9% y/y.
• Today, money supply will be published in Poland.

Economic developments

Yesterday we were looking at the price levels of households final consumption and today we plot it against the share of spending on housing and food. Countries with lower household final consumption price levels (including CEE economies, clustered around roughly 65–90% of the EU27 price level) tend to devote a relatively high share of expenditure to essentials, namely housing, food and beverages. In several CEE countries, this share is between to 38–50% (Romania has the highest share spending half of income on housing and food). That compares with a broader European group, where price levels are generally higher (above 100% of the EU27 average), but the expenditure share is typically around 33–40%. Food and housing are income-inelastic items. Households must consume them regardless of income, and therefore these categories absorb a larger share of budgets in lower-income economies. Even where CEE price levels remain below the EU average, nominal incomes are also lower, meaning that the affordability constraint is tighter. Looking from the opposite side: higher-price economies usually also have higher income levels, allowing households to allocate a smaller proportion of total expenditure to basic needs and more to discretionary consumption, services, savings or leisure-related spending.

Market movements

Hungarian central bank is expected to lower key policy rate by 25 basis point amid low inflation, strong Hungarian forint and global environment improving in terms of inflationary risks. At this point we expect rather cautious move. The statement and further communication will be crucial for further assessment of monetary policy outlook. Central bank will be waiting to see the 2026 budget numbers before making further decisions. As for Hungary prospects to join Eurozone, Finance Minister András Kármán stated the government's goal is to meet the Maastricht criteria by 2030, opening the path to euro adoption. Romania's prime minister-designate Adrian Veștea failed to win confidence vote in the parliament. The cabinet got 189 votes, well short of 233 minimum that is the threshold. The support came from center-left PSD, some MPs defecting from center-right PNL and MPs from smaller parties, ethnic minorities other than Hungarian and unaffiliated. Centrist president Nicușor Dan is expected to summon parliamentary forces for another round of consultations. Afterwards, the new nominee will have 10 days to present a new executive lineup and a government program and seek parliament’s endorsement. The president can dissolve parliament and call snap elections if two PM-designates are rejected by the parliament. he most likely scenario to break the political deadlock seems a PSD-led government. Further, Romania's finance ministry sold RON 1.306 billion worth of government securities from two issues maturing in 2031 and 2036. CEE currencies began the week slightly weaker against the euro and long-term yield marginally lower.

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