Inflation pressures in the CEE region remains muted

In August, oil prices played an important role in price dynamics in the CEE region. Brent oil prices dived to 42 USD/barrel, their lowest level since March 2009, which was reflected in lower inflation rates in the CEE region. The seasonal fall in food prices and lower prices of clothing and footwear (due to the summer sales) were seen in most countries in the region as well. In mom terms, consumer prices fell by 0.6% in Hungary, by 0.4% in Poland and by 0.2% in the Czech Republic. In comparison with August 2014, prices rose in the Czech Republic (+0.3 yoy) alone, whereas they stagnated in Hungary and decelerated by 0.6% yoy in Poland.

Core prices in the CEE region decelerated slightly in August as well. However, they are likely to grow gradually in the upcoming period due to the pick-up in household consumption, wage dynamics and an improving situation on labour markets. Yet, headline inflation is likely to reach the targets of national central banks, albeit gradually. The Czech Republic is likely to be the first country in the region to achieve the central bank's target. The Czech yoy inflation rate is likely to climb above 1% by the year-end, while, by next autumn; inflation should reach the CNB's inflationary target, according to our forcasts.

In Poland, lower oil prices together with the decision to cut gas prices (effective from September 2015) will probably keep inflation lower for longer. Prices are likely to return to positive territory by year-end. Next year, Polish inflation could accelerate towards 1.2-1.4%, still far below the central bank's target of 2.5%. According to the Hungarian central bank, inflation this year and next could average around 0.3% and 2.4% respectively.

"Inflation should reach target at the end of the central bank's forecast horizon, i.e. in 2017. As a result, CEE central banks are likely to maintain their accommodative policy stances for longer (interest rates at 1.5% in Poland, 1.35% in Hungary, FX intervention regime in the Czech Republic)",says Societe Generale.