CEE FX: Limited impact from energy shock so far – Commerzbank

Commerzbank’s Tatha Ghose assesses the latest inflation data for Poland, Czech Republic and Hungary following the recent energy price spike. He notes that while headline inflation accelerated as expected, core measures show only mild, statistically noisy upticks. Regional central banks are seen pausing further rate cuts until Oil prices fall, with secondary inflation effects still negligible for now.

Secondary inflation effects remain muted

"It is perhaps not surprising that the energy price shock has not yet had any noticeable secondary effects in March. After all, this was the first month that world energy prices had jumped, and it is likely that most countries will suffer from higher import prices only gradually as forward contracts expire. Still, because of the tricky juncture we are in, it is worth tracking and commenting on the latest data."

"As we had seen earlier in the US, headline inflation in Eastern Europe accelerated in March. This was widely anticipated for obvious reasons and will not be a concern if crude oil prices were to head back down soon. What the market may be more concerned about are secondary effects that can percolate into core categories and stick around for longer (thereby becoming a domestic policy problem)."

"HICP data published by Eurostat last week showed that core HICP mildly accelerated in March, but the acceleration was within the range of monthly noise."

"Central banks in the region are not expected to cut rates any further until the oil price has declined considerably from current levels. By that time, it will become clear whether or not prominent second-round effects will impact inflation. For now, we wanted to note that there were negligible signs of secondary effects in the latest data."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)