Central and Eastern Europe (CEE) is witnessing significant shifts in its inflation landscape as fiscal policies and economic measures come under intense scrutiny. The timing of the next rate cut hinges on a coherent and credible multiannual fiscal consolidation program and its structure, as fiscal uncertainties are likely to dominate discussions within central banks' Board meetings. These uncertainties maintain the central bank's decision-making in data-dependent mode, reflecting the region's cautious approach to economic stability.
Public sector wages have surged by nearly 20% in some CEE countries, contributing to demand-side inflationary pressures. In addition, public pensions have been increased at almost double the pace of public sector wages, further influencing inflation dynamics. These wage and pension hikes are pivotal in shaping the inflationary environment, prompting policymakers to tread carefully in their economic strategies.
Currency fluctuations in the foreign exchange market have added complexity to the economic landscape. The Czech koruna weakened against the euro, while the Hungarian forint and Polish zloty displayed resilience by strengthening. These movements underscore the diverse economic conditions across the region and their impact on inflation trends.
Hungary has made notable progress in its battle against inflation, with its rate dropping significantly from 17.6% in 2023 to 3.7% in 2024. This reduction positions Hungary's inflation rate within the central bank's tolerance band around the 3% target, signaling a positive trajectory for the country's economic stability. Core CPI inflation is projected to hold steady at 3.3% from a year earlier, reflecting sustained efforts to manage price levels effectively.
Romania recorded the highest inflation rate in the region last year at 5.6%, highlighting disparities in inflationary pressures within CEE countries. In contrast, Croatia and Slovenia maintained relatively low average inflation rates at 3% and 2%, respectively. The Czech Republic's average inflation rate stood at 2.5%, only slightly above the central bank's 2% target, emphasizing a balanced approach to inflation management.
Poland's inflation rate ended at 3.7% in 2024, marginally above the upper bound of the central bank's tolerance band around the inflation target. These figures reflect varying degrees of success among CEE countries in curbing inflationary pressures while navigating complex fiscal landscapes.
Hungarian Economy Minister Mihály Varga Nagy has pledged to sustain budget discipline, reinforcing Hungary's commitment to maintaining economic stability. His promise aligns with broader regional efforts to implement prudent fiscal measures that can support sustainable growth and tame inflation.