Eastern Europe Inflation Outlook

Forecasts for 2016 inflation, measured by the CPI, were revised lower in our latest monthly survey for almost all major countries in Central and Eastern Europe (CEE). The exceptions include Russia, Turkey and Ukraine, partly reflecting geo-political tensions and high currency volatility. While moderate and stable levels of inflation are conducive to economic stability, prolonged disinflation caused by weakness in the price of Crude Oil could undermine demand, through its implications for wages, investment and debt. Of the 14 large CEE countries covered in Eastern Europe Consensus Forecasts, the consensus is predicting that 10 will experience inflation at or below 1.0% in 2016. In response to a tough external backdrop and the aforementioned price risks, developments in key components of GDP, notably Household Consumption and Gross Fixed Investment, are being closely monitored. In several countries, the former has benefited from lower energy bills, solid trends in employment and accommodative monetary and fiscal policies. The latter, though, tends to be more volatile and most observers expect it to expand at a much lower pace in 2016 than in 2015.

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