CEE labour markets tightening

Strong growth in Central and Eastern Europe (CEE) in the first half of the year has been accompanied by further evidence that labour markets are tightening. Unemployment rates have fallen to record lows in the major economies and wage growth has picked up. Wages are increasing at double-digit rates in Hungary and Romania and, even though rises are more modest in Poland and the Czech Republic, the latest figures have been the fastest since the global financial crisis. There are already signs that this is feeding through into price pressures. Although headline inflation in the region has dipped in recent months, core inflation has edged up further. This backdrop prompted the Czech National Bank to signal that interest rate hikes are likely in the coming months, and we think other central banks are likely to shift towards tightening too. Indeed, we expect larger rate hikes across the region over the next 12-18 months than the markets are currently pricing in.