CEE Economic Outlook: Polish Inflation Dynamics and the Potential Impact on Zloty Strength

CEE: Polish inflation supports stronger zloty

Today the first interesting data in the CEE region will be published this week. PPI in Hungary was released this morning. Later today we will see November inflation and the second reading of 3Q GDP in Poland. We expect steady headline inflation at 6.6% year-on-year, in line with market expectations. We expect a further decline in core inflation, but it will be accompanied by less favourable developments in energy prices as gasoline prices bounced back after two months of declines.

FX erased some gains yesterday. Although we expected the CEE to move higher, the zloty lost the most in the region despite our expectations. However, today's numbers could put the topic of a hawkish turn by the National Bank of Poland in November back on the table and adjust market expectations for the coming meetings. There is a clear consensus of stable rates for December, however, the market still sees roughly 125bp for next year. After the fall in rates over the last two days at the short end of the curve following core rates, we see room here for rates to go higher again, supporting a stronger zloty. Thus, if today's numbers confirm inflation persistence, we expect EUR/PLN to test 4.320.