Inflation risks mount as commodity prices surge

Surging commodity prices have pushed up inflation across the region and we expect inflation to hit fresh multi-year highs in the coming months. A loss of Russian gas supplies should not lead to rationing in Poland, but it will have a big impact in Bulgaria and energy bills are likely to be higher across the region this year. With activity holding up well for now, central banks continue to focus on inflation risks and we expect large interest rate hikes next week in Poland (100bp) and Czechia (50bp). In contrast, Russia’s central bank looks set to lower interest rates further now that inflation pressures have eased sharply. It may be shifting to a dovish stance too quickly, but looser monetary conditions will only go so far to supporting activity.