CEE: Headline inflation ticks up in June

On the Radar

• Industrial output in Hungary fell by -2.6% y/y in May.

• Flash inflation in June in Czechia arrived at 2.9% y/y.

• Retail sales growth (excluding auto) in Czechia grew 5.3% y/y in May.

• At 10.30 AM CET Slovenia releases trade balance data.

Economic developments

Throughout the week, June’s flash inflation numbers were published in Eurozone as well as in several CEE countries. In Eurozone, annual inflation is expected to be 2.0% in June 2025, up from 1.9% in May. Services are expected to have the highest annual rate in June (3.3%, compared with 3.2% in May), followed by food, alcohol & tobacco (3.1%, compared with 3.2% in May). As far as the region is concerned, June’s flash inflation estimates point to increasing price pressure in the middle of the year. In all countries, June’s inflation is expected to increase. While in Croatia or Poland inflation increased rather marginally (to 3.7% y/y in June from 3.5% and to 4.1% y/y from 4.0% in May, respectively), in Czechia, Slovenia or Slovakia (HICP release) headline inflation went up more visibly compared to May. In Czechia it increased to 2.9% y/y (up from 2.4%), in Slovenia to 2.2% (up from 1.8%). At the moment, inflation is the highest in Slovakia (at 4.6%).

Market developments

On Thursday’s press conference Governor Glapinski commented that the surprising 25 basis point cut at July’s meeting is not the beginning of monetary easing cycle. He called the central bank’s decision a cautious adjustment and focused on inflationary risks such as fiscal policy or uncertainty around energy prices. The inflation is expected to fall, however, and we believe that inflation development will support further rate cuts in autumn. Governor Glapinski also admitted that the key policy rate may go much lower if the central bank manages to keep inflation close to the target. While communication sounds relatively mixed overall, we believe economic developments will be favorable to monetary easing scenario. In Czechia, Governor Michl communicated the stability of rates scenario for some time. We share the view that for the next couple of months the key policy rate in Czechia is likely to remain unchanged. The CEE currencies have strengthened against the euro at the end of the week, while long-term yields have declined. Most notably in Romania, where fiscal consolidation plans boost investors’ confidence and increase appetite for Romania’s government papers. Otherwise, global developments are shaping the markets’ development in the region.

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