Inflation rears its ugly head (Jul 08)

The rise in inflation is showing no sign of easing. Headline inflation remains above target in all countries, although price pressures are most acute in the east of the region. Prices are now rising by 30% y/y in Ukraine. Like elsewhere in the world, the key driver has been rising food and energy costs. But in contrast to the West, core inflation has also started to rise following several years of above-trend growth. The upshot is that while we expect this month’s ECB hike to be a one-off, there are good reasons to expect a sustained period of higher interest rates in Eastern Europe.