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Energy Pressures Offset Food Disinflation in CEE Countries
Confirmed
In Short: In Central and Eastern Europe, energy and food prices are driving inflation, with energy costs rising due to Middle East conflicts and government support changes, while food prices are falling in several countries.
In particular, energy and food prices are key drivers of inflation in Central and Eastern European (CEE) countries, according to FXStreet. The clearest inflationary impulse currently comes from energy and fuel, reflecting the consequences of the Middle East conflict and changes in government support schemes.
On the other hand, food prices are declining in Czechia, Poland, Slovakia, and Hungary. In Czechia, falling food prices are the main reason headline inflation remained at just 1.9% in August. Poland and Hungary saw food prices fall by 0.7% and 0.2% month-over-month, respectively.
The ongoing conflict in the Middle East and resulting disruptions in energy markets are driving up inflation expectations and keeping bond yields high. In the US, inflationary pressures, particularly in the services sector, remain too high, according to FXStreet.
In the short term, there is little potential for a sustained recovery in the bond markets, as neither a significant decline in energy prices nor a noticeable economic slowdown is expected. However, in the medium term, inflation expectations are expected to ease if energy markets stabilize, according to FXStreet.
High government issuance volumes, extensive investments in AI infrastructure, defense, and the energy transition, as well as continued positive growth prospects, point to a structurally higher interest rate environment, according to FXStreet.
What's still developing
- In particular, we look at energy and food prices development as in many CEE countries these two categories were of particular importance.
- Bank of England Chief Economist Huw Pill has called for a "prompt" interest rate rise to counter the risk that the Iran energy shock leaves price pressures embedded in the UK economy.
- By Ann Saphir and Howard Schneider / Reuters The average rate on the popular 30-year fixed-rate mortgage rose this week to its highest in more than a year, a fresh pain point for households already dealing with affordability challenges as a surge in energy prices amid renewed Middle East hostilities pushes up inflation.
- Treasury yields, which have risen in recent weeks on concern that government borrowing may be outpacing its ability to repay those debts, as well as competition for capital from companies building AI-related infrastructure and worries the U.S.-Iran conflict will worsen price pressures.