Statistical news flow from Russia is likely to reveal more signs of a stagflationary environment. On the economic growth side, elevated uncertainty and tightening access to credit pressures companies to hold off capex outlays, while consumer spending is likely to have moderated following the rush for foreign brand products over the last two months. Thus, domestic demand has continued to slow and export demand can hardly offset it (even if it has accelerated, which we doubt). The early indicators this week are likely to confirm this bleak growth picture. On the inflation side, recent weekly CPI prints suggest headline CPI might have increased to 7.3% (or even 7.4%) YoY in April on the back of recent shocks in different segments of the food market (dairy and pork in particular) as well as an FX-driven pickup in core inflation.
Otherwise, the Czech and Polish central banks are likely to keep their policy rates unchanged at 0.05% and 2.50%, respectively, as improving growth momentum in both countries hardly affects the benign inflation environment. In the Czech Republic, recent economic statistics showed more pronounced signs of a recovery, with improved consumer and business confidence as well as an advance in credit provision. In Poland, the Ukraine crisis is weighing on business sentiment (as seen in the unexpected drop in PMI) but is unlikely to disturb the economic recovery. Looking forward, an inflationless recovery argues for a later, rather than earlier, policy normalisation: a first rate hike is not on the cards for Poland before 4Q14, while the CNB is yet to unwind the FX peg (at the beginning of 2015) before it considers rate hikes.