The inflation data released by the Czech Bureau of Statistics on Tuesday came as no surprise in and of itself. With a plus of 2.8 percent, the increase in consumer prices in June over the year was somewhat above expectations. A pattern that is currently being repeated in many countries in East-Central and Southeastern Europe. In Hungary the current rate of inflation in the cost of living is 5.3 percent, in Romania 3.9 percent and in Serbia 3.3 percent, everywhere it was higher than expected and perhaps it will repeat itself on Thursday in Poland. In addition to speculation about a tightened monetary policy of the American central bank, inflation worries were among the most important valuation factors on the market, writes DZ Bank analyst Sandra Striffler.The third stress factor she mentions is the rapidly spreading delta variant of the corona virus.

Andreas Mihm

Business correspondent for Austria, East-Central, Southeastern Europe and Turkey based in Vienna.

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The dollar is in increasing demand as a safe haven and is pushing back the euro.

The consequences are well known: If the euro loses value, it will be followed by the currencies of the countries that are not part of the euro zone but do belong to the EU.

Lower risk appetite and the weaker euro left the currencies of Poland, the Czech Republic and Hungary “unsettled”, especially since “Delta” -related economic worries were added, Striffler notes.

This analysis can be applied to Romania, where industrial production fell unexpectedly in May.

Against the background there is speculation about how the central banks of the states will behave. In Hungary and the Czech Republic, key interest rates were raised in June for the first time since the crisis. Poland and Romania have shown that they still want to take their time. The macroeconomic factors in the states do not differ particularly greatly. The number of people vaccinated against the corona virus is increasing, current data show a clear economic recovery, also due to domestic consumption. The situation on the labor markets in Poland, the Czech Republic and Hungary is already tending to be tense - another factor that is accelerating rather than dampening inflation developments. This is everywhere at the upper edge, if not already above the target values,which the central banks have set themselves.

Further rate hikes in the Czech Republic

In the Czech Republic, for example, Commerzbank analyst Melanie Fischinger expects two further interest rate hikes by 0.25 percentage points each to 1.00 percent this year.

She shares the consensus of many colleagues, even if Jiri Polansky from Austria's Erste Bank points out that the situation is no longer so clear, because some members of the Central Bank Council probably wanted to wait for the pandemic situation at the beginning of August.

Deutsche Bank also expects the Hungarian central bank to raise interest rates further by the end of the year, from the current 0.90 percent to 1.35 percent in view of the continued excess inflation data.

The picture remains unclear in Poland, where some members of the central bank leadership want to turn the interest rate screw because of inflation, which the majority under the leadership of Governor Adam Glapinski thwarted. Last week they left the key interest rate at a historically low 0.1 percent. Analysts expect the first steps towards the end of the year or not until 2022, when Glapinski's term of office ends. Most observers therefore see the Polish zloty under further pressure. Market participants are concentrating on Poland's negative real interest rates and are pessimistic about the development of the zloty, writes Commerzbank analyst Tatha Ghose, who expects increasing pressure on the zloty.

The central bank of Romania, the largest EU state in Eastern Europe after Poland, is likely to remain cautious. However, their key interest rate is 1.25 percent, well above that of other countries in the region. On the other hand, writes Dan Busca from Bank UniCredit, the central bank in Bucharest is likely to want to avoid the negative fiscal policy consequences of a rapid shortage of money. In this respect, a key rate hike will probably only be on the agenda at the beginning of next year, especially since the central bank has signaled that it will be the first to tighten liquidity management.