There has for sometime been focus on the fact that the euro zone is inching closer and closer to outright deflation and that bold policy action from the ECB is needed to ensure that this does not happen. However, there has been less focus on the fact that the same thing is happening in a number of Central and Eastern Europe countries. Hence Hungary already has deflation and the Czech Republic and Poland are clearly inching much closer to outright deflation in the coming months.
Historically - at least since the end of communism - deflation has not been a problem in Central and Eastern Europe and even though inflation gradually has been brought down over the past two decade in the region it has normally been so that inflation was higher in the CEE than in 'core Europe'. Therefore the local central bankers have also mostly been concerned about avoiding spikes in inflation and they therefore likely find it somewhat challenging to think about the deflationary risks. However, we there is a real risk that most CEE countries will come very close to having deflation in the coming quarters and that monetary policy easing is badly needed to avoid this.
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