Gergely akacs

BUDAPEST (Reuters – An increase in Eastern European prices has caused a rift in central banks, which have initiated rate increases to fight inflation, and the populist governments that are trying to protect a strong economic recovery.

This is evident in Hungary, Czech Republic and Slovakia, where elections have made it difficult for central banks to complete their task. These two countries have been leading the European Union’s monetary tightening efforts. Each have increased their key rates more than one percentage point each since June.

Global inflation pressures have increased due to tight labour markets and fiscal expansion, according to economists. This could continue for longer time than originally thought.

Liam Peach, Capital Economics Analyst at Capital Economics said: “Central and Eastern Europe are one of the most vulnerable regions in the world to sustained higher inflation within the next few years.”

In defiance of the central bank’s calls to fiscal restraint, Viktor Orban, Hungary’s Prime Minister, has given voters handouts.

Mihaly Varga, Finance Minister has warned the central bank not to tighten policy too quickly for fear that it will trigger an economic recession.

Similar tensions existed before the Oct. 8-9 elections in Czech Republic, in which Prime Minister Andrej Babis was defeated. He previously criticized the Central Bank’s largest rate hike in nearly two decades for being detrimental to the economy.

The central bank of Poland raised unexpectedly rates this month in an attempt to curb inflation over the medium-term.

According to Societe Generale (OTC: ), “October’s CPI will likely approach or exceed 6 % yoy year on year across the region.” This is primarily due to external forces such as fuel, energy and food price increases. Societe Generale (OTC), stated, “But we still believe that inflation in Central and Eastern Europe is not transitory.”

“EVERYBODY IS HIRING”

Higher inflation is not a worldwide phenomenon. However, the steep wage increases triggered by a persistent labour shortage make eastern Europe stand out from other developed countries. The next year will see Hungary increase its minimum wage by nearly 20%

Hungarian jobs board prof.hu surveyed more than 2,000 people to find out if they are interested in hiring.

Sandor Baja is Randstad’s managing director for Romania, Hungary, and Czech Republic. Employees are well aware that employers can be exposed. Employees know full well that their employers are exposed.

Economists warn that the region may experience renewed market volatility after the unexpected positive developments in Poland and Czech Republic.

The central bank of Hungary is expected to increase its base rate by 15 basis points, to 1.8%, on Tuesday. Economists do see a possibility of an increase by 30 basis points after inflation reached a nine year high in September.

Over the past week, Hungary’s 10-year bonds yields rose to around 3.6%. These levels are their highest in three years. Also, they were under pressure by increasing U.S. Treasury yields. The 10-year Czech bond yields are currently at their highest level since the beginning of 2014. They were offered at around 2.3%.

A purchasing manager for a Hungarian manufacturer of transport components said that supply chain disruptions, high raw material prices, increased energy costs, and higher transportation and fuel costs are slowly affecting prices.

The manager who declined to be identified said that companies’ ability to absorb these price increases will depend on the severity of the pandemic.

We expect some normalization in energy and raw material prices next year, but it will not be a dramatic decline. These new levels will certainly exceed the pre-crisis cost.

Eurobarometer surveys have shown that inflation is causing alarm in Central European households. The Czech Republic and Poland are currently among the top countries in the EU with regard to inflation concerns.

Katalin Almasi (a 63 year-old pensioner) said that she must work in Budapest as a cleaner to keep her sanity.

You can clearly see that prices have risen everywhere. This is especially true for fruits and vegetables. To see what they are worth buying, you really have to look around,” she stated. I don’t like shopping anymore.