Czech Republic - Inflation lower than expected
The Czech inflation came out much lower than expected. Prices declined 0.2% m/m pushing inflation to 1.8% y/y (within the borders targeted by the central bank). This result was mainly due to a sharp decline in prices of vegetables, which was driven by the fears of the German bacteria. As the effect of this factor should vane out, the inflation should again go up in the coming months. Even so it is another argument for the Central bank to postpone the first interest rate hike from summer to the autumn. The others include a rather strong koruna, lower euro yields and slow domestic demand. Also the improvement in the labour market (the unemployment declined to 8.1% in June) is somewhat uncertain. The number of vacant jobs is rising very slowly and the job creation out of pro-export industry sector is rather non-existent. The Czech koruna came under pressure in the morning both due to lower inflation and mounting fears on euro zone peripherals.
Hungary - Good inflation data does not help the forint
The Hungarian forint declined on mounting eurozone debt concerns and the pair slid almost 2% from 265.00 to 269.50 by this morning. The better-than-expected inflation data from June did not help the currency much even as it may open the door for rate cuts in the second half of the year. Inflation fell to 3.5% Y/Y from 3.9% Y/Y, while core inflation rose to 3.0% Y/Y from 2.7% Y/Y. Stable fuel and food prices have been helping the index, while inflation of services and tradable goods remained low. Our model points for below-3% inflation by the year-end, which may open the door for rate cuts later if the current risk aversion abates.
The Polish zloty came again under pressure. The domestic scene is pretty empty for the week ahead but the euro zone debt crisis and subsequent strengthening of US dollar weighed on Polish markets. Furthermore Polish households similarly to the Hungarian ones face substantial FX risk in their mortgages. That is why Polish markets are more sensitive to the current record strength of Swiss franc against the euro. From a technical point, after the break through the EUR/PLN 4.00 barrier, the pair might retest the 4.12 level.