Key events in EMEA and Latam next week

In Hungary, the highlight of the week is the June CPI reading on Tuesday. We see inflation jumping above the National Bank of Hungary's (NBH) target for the first time since January 2013. The main driver behind this acceleration is the increase in fuel prices. Besides this, we expect recreational services to become more expensive due to high demand. Our base case is a 3.1% YoY reading, but we warn of a possible upside risk to 3.3% YoY. When it comes to monetary policy, we don’t see this as a game changer, as the NBH expects inflation to be between 3.2% and 3.4% in the summer based on their latest projections released at the end of June. Moreover, core inflation will remain unchanged and therefore remain well below target.

We look for a flat CPI reading on a monthly basis, which means that annual inflation will also remain unchanged at 5.4%. This is down to seasonality kicking in for fresh fruit and vegetables offsetting the rise in fuel prices and the inflationary pressure from the weaker leu. Benign monthly inflation during the summer months suggests the National Bank of Romania could delay hiking rates unless the global worries amplify the depreciating pressures on the Romanian currency.

Despite the poor sentiment in emerging markets, the National Bank of Serbia (NBS) has continued to intervene in the FX market by buying EUR to curb dinar firming pressures, drawing a line in the sand at 118 in EUR/RSD. In fact, constant appreciation pressure on the Serbian currency, due to a combination of foreign direct investment and bond inflows, is the only argument for the NBS to cut rates. Otherwise, inflation bouncing back higher and global uncertainties are likely to keep the NBS on hold for some time, with the easing cycle being likely behind us.

Fuel prices accelerated by 3.6% MoM in June, pushing year on year dynamics from 4.8% YoY in May to over 10% in June. Food prices might also slightly accelerate in June as preliminary data suggests. Core inflation should broadly stagnate or increase just slightly in MoM terms, which is the normal pattern for June. These factors should together push headline inflation to 2.5% after 2.2% in May, but in the next few months, slightly weaker readings are expected. The share of unemployed people is likely to be below the 3% level. On the other hand, industrial production might dissapoint due to a high base and potential May holidays. We expect industrial production to slightly decline in year on year terms.

The new National Bank of Poland's (NBP) inflation projection should provide another dovish message, supporting the Monetary Policy Commitee's rhetoric. We expect a strong downward revision of the CPI forecast for 2018. We expect prices to grow at 1.4% YoY as opposed to 2.1% YoY in the March report. Similarly, the NBP is likely to lower long-term growth prospects. Overall the Bank’s forward guidance, rates flat in 2018 and 2019, is safe in our opinion.