Inflation to moderate after several months of steep rise in many CEE countries, says Erste Group

While inflation sharply picked up the pace in 2017 towards the current 1.4 percent y/y (vs. 0.2 percent y/y from YE16), room is still seen for a few notches stronger figure in the coming months, though the headline figure is expected to move in a rather tight band, i.e. normalizing around 1.5 percent throughout 2017.

The still present base effect, reversal of cost-side pressures and stronger domestic demand, on top of some one-off from the government side (e.g. hike in the tolls for Croatian motorways), imply that we could see inflation peaking in 2H17, but not too much vs. the current levels.

In Poland, the inflation rate peaked in February at 2.2 percent y/y, as in March we saw inflation dropping to 2.0 percent y/y, according to the flash estimate. For the coming months, inflation is expected to ease further and stabilize below 2 percent, conditional on the oil price not rising sharply.

"Toward the end of the year, the inflation rate is likely to drop even toward 1.5 percent, touching the lower bound of the inflation target. All in all, we see limited risks for the inflation rate to reach the central bank’s target of 2.5 percent this year. We thus see stability of rates as the most likely scenario. Moreover, demand pressure remains limited, despite accelerating economic growth and a tightening labor market, favoring the dovish stance of the MPC," ERSTE Group Research commented in its latest research publication.