December's inflation reading was substantially below expectations (24.5% vs. 25.8% consensus). This is largely explained by deceleration of food price inflation and a methodology-induced decline of household energy prices. Market reaction was positive, but we remain concerned about existing high level underlying inflationary pressures. We kept our 2023 average inflation forecast unchanged at 17.9%.
Fed, ECB and even SNB fear that elevated inflation proves to be sticky. To push down inflation, rates will be hiked further and remain high for longer. In CEE no hikes should occur at the last central bank meetings of 2022 next week while politics has dominated the news lately.