EME Macro/Strategy: Inflation outlook update

The economic sentiment indices (ESI) released for March delivered a more constructive message than in the last two months, even considering the slow pace of vaccinations. The recovery is broadening and accelerating, notwithstanding lockdown measures. In Central Europe, the survey results were mixed: Poland improved the most, followed by Hungary. Romania’s performance was marginally positive, while the Czech Republic dipped again to end-4Q20 levels. The Greek ESI also performed well, showing strong improvements in all subsectors. Outside the EU, Turkish sentiment data remained at strong levels, especially considering the tight monetary policy in the country, while PMI surveys in Russia suggest an improvement, led mostly by services. Regarding consumer prices, inflation strengthened in March, mainly due to the direct and indirect effects of the recent increases in oil and commodity prices in the various phases of the price system. Broadly, the spread of price increases remained more contained in the Euro area periphery (Greece, Italy, Spain) than in the Euro area itself. In Central and Eastern Europe, annualised core inflation for the last few months suggests 2021E inflation above the target range of monetary institutions across the region, with the exception of the Czech Republic.