Inflation Fears Return to Haunt Investors in Europe’s East

• Inflation shocks across eastern Europe have put local central-bank policy front and center for bond and currency traders, even as officials play down the uptick in price growth.
• The Czech koruna is the biggest climber among its near neighbors this year and hit a seven-year high on Wednesday as the prospect of a ninth rate hike in little more than two years lured investors. At the other extreme, the Hungarian forint is the worst performer in the period as policy makers cling to a no-change stance. Bond yields have climbed across the region.
• Higher-than-forecast inflation prints from Poland, the Czech Republic and Romania in the past week have rattled markets and served up a reminder that risks from a tight labor market haven’t abated. It’s a predicament that contrasts with the euro area, where the European Central Bank is struggling to rekindle price growth.
• Given eastern Europe’s trade links with the euro region, some policy makers are looking past spikes in inflation and maintaining loose monetary policy. Investors aren’t fully on board, however.

(Source: Bloomberg)