As of December, inflation rates were a topsy-turvy affair in Central and Eastern Europe. This move not just signals a changing attitude economic conditions across varying countries like Czechia, Croatia, Poland, and Slovakia. With inflation rates easing across much of the world, including in developing nations, the economic outlook is becoming less uncertain, and we should see more persistent moderation in the months ahead.
In Czechia, inflation slowed down to 2.1% year-on-year in December, catching analysts off guard with a much lower prediction. The recent decline in inflation is a welcome sign. Projections indicate that by 2026, average inflation will be just above the target. This trend is consistent with parallel, though less dramatic, trends in Poland, where inflation fell to 2.4% year-on-year in December. Stay tuned as the Polish Ministry of Finance prepares to rattle the market. They will present bonds in a range from PLN 8–12 billion on an auction on January 9.
Regional Inflation Insights
Croatia has seen a turn in inflation fortunes, with the annual rates of inflation softening to 3.3% year-on-year in December. This overall drop is representative of a larger trend throughout the continent, as nations reorient towards new economic imperatives. On the other hand, Slovenia experienced an increase in inflation pressure, as it reached 2.7% yoy in December.
Slovakia’s situation presents a mixed picture. Despite its prices dropping 0.3% from November, its annual rate of growth sped up to 4.1%. This is due to the base effect that was seen at the end of last year. It showcases the complicated interplay of inflationary factors in the territory.
Debt Market Developments
Together with the continuing downward trend of inflation rates, many countries oversaw debt sales to restore their fiscal health. On January 24 Czechia announced a EUR 2 billion bond sale with 2033 maturities. These bonds were priced at 160bp over midswaps, a clear execution of their opportunistic strategy within the shifting economic environment.
These were for EUR 1 billion, and mature in 2038. These notes have proven very popular in the current environment, as they offer an alluring yield of 195 basis points over midswaps. This commitment to sustainable financing is part of an encouraging global movement among countries that are placing environmental concerns at the center of their fiscal policies.
Demand was so strong at Hungary’s latest auction that it set a record. This is a true sign of investor confidence in the region, despite the ongoing inflationary challenges.
Economic Outlook
One of these recent trends has been that inflation in Czechia and Poland have surprisingly dropped. This is quite literally in line with the goals they agreed to with their respective national governments. This recent advance provides important reason for hope to state and local policymakers that have pledged to keep their communities fiscally solvent.
As nations adapt to this sea change, the attention will be on inflation’s trajectory early in 2024 and after. Countries are preparing for auction markets and bond sales in the month of January. They’re doing the first, while courageously pursuing the second, taking on anti-competitive, economic burden-creating practices directly.