In June, inflation in the Central and Eastern European region took another small step on the way up

In mom terms, inflation accelerated by 0.2 % in Hungary, by 0.1% in the Czech Republic and stagnated in Poland. The structure of the consumer price index was similar across the region. Transport prices went up, in mom terms, the rise in seasonal fruit and vegetable prices was offset by the fall in prices of other foods, while summer sales pushed prices of clothes lower.

"In comparison with the year before, inflation climbed to its highest level in 18 months (+0.8%) in the Czech Republic and to its highest point since November 2013 (+0.6%) in Hungary, while, in Poland, deflation eased to its lowest level since the end of the last year (-0.8%). June figures confirmed once again, that inflation in the region has already bottomed out and now it is slowly heading higher" says Societe Generale.

Despite a moderate pace of growth, inflation in the CEE region is likely to remain below the central banks' targets this year. Czech inflation should reach the central bank's target as soon as the beginning of 2016. Nevertheless, the central bank may consider cutting interest rates into the negative, especially in the event of more prolonged and aggressive attacks on the 27.00 EUR/CZK floor. However, in an initial phase, it is expected that, Czech central bank to intervene on the market. The central bank's FX reserves represented around 30% of GDP in June, so it still has enough room to buy euros and push the crown to weaker levels. It is believed that, Czech central bank is likely to maintain its FX commitment at least until H2 16, notes Societe Generale.