By Jan Cienski in Warsaw, Thomas Escritt in Bucharest and Robert Anderson in Stockholm
Hungary and Slovakia on Wednesday announced unexpectedly high inflation figures, reinforcing concerns about rising costs driven by wage growth and high commodity prices.
The inflation rate in Hungary accelerated to 7 per cent in May from 6.6 per cent a month earlier. The rate in Slovakia hit an annualised 4.6 per cent last month while the Czech Republic remained high at 6.8 per cent in April.
The Baltic state of Latvia saw its year-on-year rate hitting 17.9 per cent in May.
Neil Shearing, emerging Europe economist at London-based consultancy Capital Economics, said: “Pretty much without exception, inflation is going to remain above target in every country in central Europe until 2010 at the earliest.”
He said fuel and food costs were the main external factors driving price rises in the region, although capacity constraints were starting to bite after many years of economic growth, with wage pressure the result.
Increasingly, such pressures is taking the form of industrial action. A three-week strike at Renault’s Dacia subsidiary in Romania in April led to a pay award averaging 22 per cent, while workers in the Czech Republic are threatening a national one-day strike on June 24.
Poland,
where prices are rising at an annual rate of 4.3 per cent according to
finance ministry forecasts for June, has also been beset with labour
troubles, particularly in the public sector.
Civil servants are attempting to catch up with the private sector, where salaries are rising at double-digit rates. The pro-business Civic Platform government this year dealt with strike threats from doctors, nurses, judges and customs officers.
In Latvia, labour shortages, exacerbated as in Poland and Romania by migration to western Europe, pushed wages up 31.5 per cent last year.
In Romania, where inflation came in slightly lower than expected at 8.5 per cent in May, wage pressures are expected to resume ahead of elections due in November. Liviu Voinea, an economist at the Bucharest consultancy GEA, said: “The currency hasn’t depreciated further since the Dacia strike and inflation has stagnated since March, so there are no additional pressures for a big push now. But probably in the autumn, with an election knocking on the door, there’ll be some more wage pressures.”
Monetary authorities are mostly maintaining a vigilant stance, faced with surging inflation.
Andras Simor, governor of the Hungarian central bank, said there was an “equal probability” of the bank keeping rates steady or tightening monetary policy. Rates in the country now stand at a three-year high of 8.5 per cent.
Poland’s central bank has been cranking up interest rates since last year and the headline rate now stands at 5.75 per cent, with most analysts expecting a further quarter-point increase this month.
In Bulgaria, the central bank has increased its base interest rate by more than 1 percentage point in the last year to 4.96 per cent, after recent sharp increases in inflation that in April hit 14.6 per cent, the highest level in the EU outside the Baltic states.
Meanwhile, Ukraine has raised its 2008 inflation forecast to 15.3 per cent from a previous 9.6 per cent.
Mr Shearing said monetary authorities in the region would need to remain hawkish. “The real risk is that policymakers are in danger of becoming complacent,” he said.
“People are starting to say the Czech Republic is done with tightening for now. I can’t see how that can be true.” The output gap was still there and the economy was still operating above its potential, he said.
“Regardless of what happens to food and energy prices, inflation is starting to accelerate and that’s going to be keeping the central bankers awake at night,” Mr Shearing added. “A 3 per cent inflation target is ambitious for these countries anyway, as policymakers are starting to realise.”
