* Inflation up sharply in Hungary, at 20-month high in
Slovakia, dips but seen rising in Romania
* OECD urges Poland to hike rates
* Czech output jumps, seen slowing, Slovak trade worsens
By Michael Winfrey
PRAGUE, June 11 (Reuters) - More expensive food and fuel
drove eastern European inflation in May and increased the
pressure on the region's central banks to continue tightening
monetary policy.
Hungary's inflation accelerated sharply to a higher than
expected 7.0 percent, Slovak inflation leapt to a 20-month high
while in Romania it eased slightly, though analysts said it had
yet to peak.
Soaring commodity prices are lifting consumer prices around
the world and making it more and more difficult for central
bankers struggling to keep growth alive in a global slowdown.
Currency strength in central and eastern Europe has
partially kept price growth in check, but analysts are beginning
to revise forecasts for policy easing as global factors
intensify pressure on central banks.
Hungary's year-on-year inflation <HUCPIY=ECI> rose to 7.0
percent from 6.6 percent in April. It was the first rise in the
annual figure in five months and analysts had expected it to
stay flat.
The increase comes at a bad time for Hungary which saw a
selloff in bonds and the forint <EURHUF=D2> last week after the
European Central Bank said it might hike rates as early as July.
Investors demand a premium for holding riskier assets like
Hungary rather than safe euro zone bonds.
Hungary's central bank is also having a row with the
government, which wants more flexibility on inflation targeting
to avoid stifling already very weak growth.
"Recent hawkish ECB rhetoric and the forint correction
increase the likelihood of the NBH continuing its gradual rate
hikes in June, especially if the global environment remains
negative in the upcoming weeks," Citibank analyst Eszter Gargyan
said in a report.
Central bank chief Andras Simor told a Polish paper on
Wednesday there was an "equal probability" of the bank keeping
rates steady or tightening after its last three moves lifted
them 100 basis points to a three-year high of 8.5 percent.
Poland is also feeling the heat. The Organisation for
Economic Cooperation and Development said it expected inflation
there to hit 5.5 percent next year, from 4.0 percent in April.
It said the central bank, whose inflation target is 2.5
percent, should raise interest rates another 125 basis points to
7 percent this year.
OUTPUT, TRADE FEEL PINCH
Along with higher inflation, the region is starting to feel
the pinch of the global slowdown from the euro zone -- its main
export customer.
Slovak consumer prices -- although not the key euro zone
norm figures followed by the market -- showed an annual rise of
4.6 percent in May, the highest since September 2006.
But the country also showed a surprise trade deficit of 5.8
billion crowns in April -- compared with expectations of a 2.4
billion crown surplus -- as imports jumped.
There was no breakdown of the data but analysts said the
strong crown, which has appreciated 5.5 percent since May when
Slovakia's bid to join the euro in 2009 was approved, may be
fuelling import growth by consumers, compounding dampening
effects on export growth caused by weak euro zone demand.
Next door, Czech industrial output <CZIPY=ECI> jumped in
April to a better than expected 12.2 percent, sending the Czech
crown <EURCZK=> to 24.400 per euro -- an all time high apart
from a freak trade at 23.00 in April.
But analysts said the numbers were largely due to more
workdays in April than in 2007 to an earlier than usual Easter
holiday. They expected orders to fall later this year.
"We do not change our view that Czech industrial output is
going to feel the negative impact of the strong Czech crown and
weaker growth in the euro zone in the months to come," said
Radomir Jac, chief analyst at PPF asset management.
GLOBAL PRESSURE
The slowdown may eventually temper inflation in eastern
Europe which, like other emerging markets, has seen price growth
boosted by high commodity prices, surging domestic demand and
high economic growth. But not yet.
Romania's inflation <ROCPI=ECI> eased slightly in May to 8.5
percent but still exceeded market forecasts. Analysts said it
had yet to peak and, due to strong economic growth of 8.2
percent in the first quarter, the central bank had no reason not
to tighten policy.
"The central bank will have no choice but to hike rates (on
June 26) given the stronger than forecasts economic growth
data," said Ionut Dumitru, head of research of Raiffeisen Bank
in Bucharest.
The bank has raised rates by 275 basis points to October to
bring the cost of borrowing to 9.75 percent. Officials see
inflation at around 6 percent at the end of this year, well
above the 2.8-4.8 percent target.
(Additional reporting by Balazs Koranyi, Radu Marinas, Peter
Laca)
