Producer prices are gradually rising in Central and Eastern Europe

On the radar

• In June, nominal wages in Hungary rose by 13.3% in nominal terms and by 9.3% in real terms compared to the previous year.

• Today the unemployment figures will be published in Poland (10:00 a.m. CET) and Slovenia (10:30 a.m. CET).

• Real wages are also expected to rise in Serbia in June.

Economic developments

This week we will see flash estimates of inflation for August in several CEE countries. In Croatia, Poland, Slovenia and Slovakia (as part of the HICP flash estimate), such releases are planned for the end of the week. In all these countries we expect inflation figures in August similar to those in July. Today, however, we look at the evolution of producer prices in CEE. Producer prices bottomed out at the beginning of the year and have been gradually rising since February. The increase in production costs points to upward pressure on headline inflation in the coming months. However, after the period of exceptionally high inflation, there may be limited scope for further transmission of higher costs to consumers. If the cost increase is small, it may also be largely absorbed by producers.

Market movements

US Federal Reserve Chairman Jerome Powell made it clear in Jackson Hole that interest rate cuts will come in September. Locally, the Hungarian central bank is expected to leave the key rate unchanged this week after inflation surprisingly came in positive in July. Nevertheless, we see room for further rate cuts by the end of 2024. Last week, the Czech koruna and the Hungarian forint strengthened against the euro, while long-term yields mostly declined across the region except Romania. Romania announced its intention to reduce the budget deficit to 3% of GDP within seven years; this proposal has also been submitted to the European Commission. Romania needs time to reduce the deficit, as investments from the recovery and resilience plan, especially those financed by RRF loans, will increase the deficit.

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