Omicron? Central banks focusing firmly on inflation

Inflation pressures have shown no signs of letting up across Emerging Europe, with headline inflation rates surging to multi-year highs in November. Producer price inflation has hit rates not seen in decades, food inflation continues to surge and strong wage growth is pushing up cyclical price pressures in Central Europe. Central banks, with the important exception of Turkey, are clearly focused on tackling inflation, continuing to hike interest rates despite the emergence of the Omicron variant. We think that inflation will stabilise in most countries in the coming months but it will take some time for headline rates to fall back to central banks’ targets, in some countries not until 2023. Against this backdrop, and amid growing signs of inflation expectations becoming unanchored, we expect interest rates to continue rising well into the new year.