Inflationary pressures across Central and Eastern Europe (CEE) are intensifying, with higher-than-expected consumer price index (CPI) data prompting a shift in monetary policy expectations across the region, Nicholas Farr, an emerging Europe economist with Capital Economics said in a note on February 12.

“We have revised up our interest rate forecast in Hungary in response and no longer expect any monetary easing there in 2025. In Poland and Romania, we maintain our above consensus interest rate views,” said Farr.

January inflation data from CEE have raised concerns among central banks, with Hungary seeing the most pronounced surge, driven by a range of categories.

Headline inflation in Hungary jumped to 5.5% y/y from 4.6% in December, significantly exceeding consensus forecasts of 4.8%. Core inflation also climbed from 4.7% y/y to 5.8%, driven by a sharp rise in telecommunications costs as well as food and fuel price increases, reports Capital Economics.

In Czechia, inflation edged down but still came in above expectations at 2.8% y/y (consensus: 2.6%), largely due to higher food prices. Meanwhile, data due this week is expected to confirm that inflation in Poland and Romania remained well above central bank targets in January, at 5.2% and 4.6% y/y, respectively.

“One concern is that forward-looking indicators suggest that inflation may rise further over the coming months. Firms‘ selling price expectations a have picked up across the region and our CEE-regional aggregate measure of firms’ selling prices is now at its highest level since early 2023 (the peak of the inflation crisis),” says Farr.

Hungary and Romania—where concerns over persistently high inflation have been greatest—are leading the rise in price expectations. The largest adjustments have come from retailers, particularly those in the food and beverage sector, indicating a potential doubling of food inflation to around 10% y/y by mid-2025, reports Capital Economics.

Services inflation, which central banks in the region have closely monitored, is also showing signs of acceleration. Survey data suggest that CEE regional services inflation could rise from 6.4% in December to around 8% later this year, adding to policymakers’ concerns.

With inflation risks mounting, analysts are no longer forecasting monetary easing in Hungary this year. The Hungarian central bank is expected to revise its 2025 inflation forecast from 3.7% to around 4.8% at its next meeting in March. Previously, 100 basis points (bp) of interest rate cuts had been anticipated in the second half of 2025, but these have now been scrapped, reports Capital Economics.  

In Poland and Romania, while no immediate changes have been made to forecasts, the latest data reinforce the expectation of limited monetary easing. The consensus view has been for 75-100bp of rate cuts in both countries, but analysts now expect no cuts in Poland and only 50bp of easing in Romania.

“We have been warning about upside risks to the inflation outlook across CEE for some time, but the scale of the increase in selling price expectations has surprised even us,” says Farr. “The rise in European natural gas prices and weakness of CEE currencies since the US election may have had an inflationary impact at the margin too.”

Capital Economics expect no interest rate cuts in Poland and only 50bp of cuts in Romania this year against the consensus view for 75-100bp of cuts in both countries,

The rise in inflationary pressures can be attributed to several factors, says Capital Economics, including:

• Higher commodity prices, particularly in agriculture, which is expected to push food inflation higher across the region.
• European natural gas price increases, exacerbating energy costs.
• Weaker CEE currencies following the US election, adding to imported inflation.
• Stronger demand conditions, as early Q4 GDP data suggest economic activity is picking up from weak levels. With nominal wage growth still high, businesses may have greater scope to pass on rising labour costs to consumers.
• Inflation Risks Tilted to the Upside
• While businesses’ selling price expectations have not always been a perfect predictor of inflation trends in the past, the latest widespread increases in expectations across multiple sectors raise the risk of inflation remaining stubbornly high in CEE.