This week, attention should return to local data in Central and Eastern Europe. Tomorrow, Poland’s inflation figures for September will be released. We expect headline inflation to jump from 2.9% to 3.0%, driven by a shallower decline in gasoline prices compared to August. Core inflation is estimated to have eased further, while food and energy inflation remained broadly stable. More pronounced declines in headline inflation are expected in November and December.
On Wednesday, we will receive PMI figures across the region, where we could see some slight improvement in sentiment. On Friday, Turkey’s inflation figures for September will be released. We expect a further decline from 33.0% to 32.2% but month-on-month, we will see some acceleration from 2.0% to 2.4%. Risks are on the upside, given continuing pricing pressures in food, with adverse weather conditions and the start of the school season pushing education inflation higher.
In the Czech Republic, general elections will be held on Friday and Saturday, suggesting an opposition victory, but the latest polls show a closer race than expected. In recent days, the market has priced in a higher fiscal premium, with government bonds underperforming their CEE peers. However, we do not expect a significant widening of the fiscal deficit in any scenario, and the long end of the curve seems too high, although we may see more pressure here this week.
EUR/CZK seems untouched for now, and historically, FX has not reacted much to elections in the Czech Republic, which should also be the case this time. In general, conditions in the CEE region are turning positive for FX again. Market rates rebounded significantly last week, and EUR/USD is heading up again. We should also see some rebound in the CEE region this week.
Chris Turner
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