Inflation threat is not as big as many fear

Headline inflation has picked up across much of Emerging Europe. But we don’t think this threat is as big as some commentators are suggesting since underlying inflationary pressures are subdued. With the growth outlook deteriorating, we have still pencilled in rate cuts in the Czech Republic, Poland and Romania, starting in Q1. However, in Hungary, while much depends on the outcome of negotiations with the IMF, we expect a further hike in rates this month.