Policymakers to look through any food price spike (Aug 10)

Emerging Europe Central Bank Watch 1 Aug. 2010 EMERGING EUROPE CENTRAL BANK WATCH Economies in Emerging Europe are more vulnerable than those in the West to a spike in wheat prices following recent events in Russia. After all, food accounts for a much larger share of the overall CPI basket. But the bigger picture is that any food related spike in inflation is likely to be temporary. Substantial slack still exists in most economies, meaning that the scope for so-called second round effects on core prices is limited. And with most countries in the region now stepping up fiscal consolidation efforts too, our view remains that monetary policy will remain accommodative for some time to come. We expect interest rates to stay on hold at record lows in every country this year, and into 2012 in Hungary, Romania and the Czech Republic.