PRAGUE, June 23: Strong currencies have helped shield consumers in central and Eastern Europe from a spike in oil prices, even as others around the world harangue their governments to rein in rampant price growth.
Inflation in Poland, the Czech Republic and Hungary is at multi-year highs, prompting central banks there to hike interest rates. But growth has remained strong, drawing investors into crowns, zlotys, and forints, helping ease the pain.
With oil near record levels protests have erupted from Spain and Greece to Israel and Nepal as farmers, truckers and students complain the trend is crippling their economies.
But strength in the Czech and Slovak crowns, the Polish zloty and Hungarian forint have made a difference.Not only have they tracked the euro’s 6 per cent gain against the dollar since the start of the year, but they have firmed against the European currency by half as much again, for nearly double its gains against the greenback, and thus crude as well.
“Thanks to the strong crown, the impact of the rising price of oil and gas has been gradually eliminated,” Czech Prime Minister Mirek Topolanek told Czech magazine Ekonom. “The bad news is that prices are going and will continue to go up if they don’t find new reserves.”
Overall price levels in central Europe have soared due to higher wages spurring consumer demand and due to administrative price hikes, but the impact of the oil price does not stand out.
The Czech crown has firmed 8.5 percent against the euro since the start of the year. But it has jumped 13.1 per cent against the dollar in the same time.
Inflation there hit a nine-year high of 7.5 per cent in January, but the average price per litre of 95 octane petrol in Prague is now about 32.64 Czech crowns ($2.12), only marginally more expensive from 31.22 a year earlier.
In Slovakia, where the crown is up 9.8 percent against the euro and 14 per cent against the dollar, petrol is 40.86 Slovak crowns ($2.09) per litre, just around 4 per cent dearer than a year ago and slightly cheaper than in June 2006.
Floating above the storm
Not all is rosy. Although petrol is subdued, diesel prices in Eastern Europe have followed a global jump higher.
Hungarian hauliers have asked the government to take measures after a 13 per cent rise since January 1. In Poland, diesel has leapt 27 per cent in the past year, and truckers have planned a protest to underline their demands for action.
But the response has been muted compared with that in countries like Nepal, where protesters burned vehicles and clashed with police to demand lower student transport fares.
Inflation was 7.0 per cent in Hungary last month, while the 4.4 per cent in Poland is above the central bank’s 2.5 per cent target, and both are expected to continue tightening rates.
Despite the high price growth, analysts say what appears to be complacency from consumers is their familiarity with high inflation. Many of the states have generally had price growth of 5 per cent or more for much of the last two decades, and much higher in some in the early 1990s after the fall of communism.
“These countries are coming from a relatively high inflation environment for a number of years and only recently achieved something akin to price stability, whereas West European consumers ... are much more used to price stability, said Ivailo Vesselinov, EMEA economist at Dresdner Kleinwort.
Fuels not only factor
There are exceptions. Bulgaria’s lev is fixed to the euro, meaning the European currency’s strength has helped it somewhat, but it does not have the same advantage as central European units, and truckers there have protested.
Romania’s lei currency floats freely but has underperformed its peers, growing just 2.62 per cent against the dollar since Jan. 1. Fuel retailer Rompetrol’s prices have jumped 53-63 per cent since a year ago, mainly due to jumps in excise taxes.
“Of course (price hikes) affect me, but what can I do?” said Florina Anita, a 39-year-old taxi driver. “Fine, hike prices, but then you hike salaries too.” Economists say Anita’s concern wages and other knock-on effects are one of the greatest dangers now.
Although currencies have shielded central European countries from the oil shock, other influences, including a rise in global food prices, also put consumers on the defensive.
And consumer worry means demands for salaries as seen in the 12.6 and 10.6 per cent growth in Polish and Hungarian wages in the year through April which stokes more price growth.
“Their flexible exchange rates have worked to their advantage,” said Christoph Rosenberg, Senior Regional Representative Central Europe and Baltics. “But what they need to be careful of is second round effects, because in spite of all of this, inflation, especially food price inflation, is creeping up and may be affecting expectations.”—Reuters
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