Central Europe hints inflation under control

Poland: According to the country's Central Statistical Office, inflation was dropped to 1.1% YoY versus 1.5% YoY in March. In monthly terms prices increased by 0.4%. The factor that most affected the April CPI print was the clothing and footwear index. Polish deflation in April was softer than in the previous month.

Hungary: Hungary's CPI inflation accelerated to -0.3% YoY in April, while the market consensus was looking for a headline figure of -0.5% YoY. Price rises were noticed in the durable goods, alcoholic beverages and tobacco, services and food categories. Core inflation increased from 1.0% to 1.2% in April. According to the Hungarian central bank's latest inflation report, inflation should rise gradually over the next few months but will remain in negative territory in the first half of the year. Inflation is expected to be around zero on average in 2015 and around 2.6 % in 2016, according to the central bank.

Czech: Inflation increased from 0.2% in March to 0.5% in April which was slightly above our and the market's estimate of 0.4%. The CNB's most recent forecast saw inflation at 0.3% YoY in April. Therefore, April inflation was above the central bank's forecast and thus doesn't give it a reason to adjust upward the current EUR/CZK floor of 27.00.

We project that the CZ crown will appreciate to close to EUR/CZK 26.00 and will stabilize around this level thereafter. This would represent CZK appreciation of above 3%, which will however be acceptable to the central bank, in our view.