Fall in inflation gives central banks breathing space

The fall in inflation across much of Emerging Europe last month was surprisingly sharp, which in part was due to lower oil prices but also (and more unexpectedly) a dip in food inflation. One consequence is that the Turkish central bank is likely to cut interest rates as soon as next month and policymakers in parts of Central Europe are likely to delay or postpone tightening. That said, strengthening core inflation in Central Europe means that we still expect rate hikes in 2019. Indeed, earlier this month, Hungary’s central bank, usually the most dovish in the region, provided its clearest steer yet that tightening is on the horizon.