While Western Europe is expected to have inflation under control within a year, countries in central Europe such as Poland and Hungary have seen prices stay out of control for longer than expected, Reuters reported.
Central and Eastern Europe have been hit hard by inflation for months, squeezed by soaring prices and the impact of interest rate hikes by central banks. The latest figures show. Inflation is almost 16 per cent in Romania and just over 20 per cent in Hungary, well above the ECB’s target range of 1-4 per cent. Hungarian bread and cheese prices rose about 70 percent in September from a year earlier, while sugar prices in Poland rose 50 percent, with some sellers stocking up on fears that prices would continue to soar after the summer.
In response to inflation, unions pushed for big wage increases to preserve purchasing power, sellers raised prices to protect profit margins, and the looming risk of recession made inflation less effective than expected. Nicholas Farr, European economist, said: “The longer elevated inflation and wage pressures persist, the greater the risk of the bank rate hikes and sharp increases in unemployment that are needed to weaken demand and restore price stability.”
Dan Bucsa, chief economist at UniCredit CEE, said inflation expectations are moving away from central bank control targets. Bucsa noted that consumers had brought forward spending in the first nine months of the year, which he said showed that households expected inflation to rise further and that wage negotiations had led to much higher wage growth than in the past. Hungarian household inflation expectations have risen sharply to double digits, according to the central bank’s latest survey. GKI, a think-tank, said price intentions rose in all sectors except construction last month. A survey by Poland’s statistics office showed that more than 70 per cent of consumers expected inflation to be no lower or even higher in the next 12 months, while the BIEC think-tank survey showed an increase in household and business inflation expectations.
Erzsebet Kristofi, a 47-year-old single mother from Hungary, has a child with special needs who has relied on government handout donations for much of this year. “Everything has become more expensive, bread, basic food… Cooking ingredients and so on…” Last week, she said, she stood in line on the outskirts of Budapest to receive a hot meal distributed by the government. “That’s why I’m here, to have some fresh food every day, some bread, pastries or vegetables.”
Marek Drimal, chief CEEMA strategist at Societe Generale, expects Poland’s inflation rate to peak above 20 percent in February and remain above 10 percent until the end of 2024. He said inflation in Hungary could hit 24% in February-April and fall to single digits by mid-2024. According to a Czech central bank survey, companies expect year-on-year inflation to be 10.3 per cent in one year and 7.5 per cent in three years, well above the central bank’s 2 per cent target.
Erste Group economists say inflation in Central Europe is likely to be a ‘persistent phenomenon.’
Post time: Nov-17-2022