By Michael Winfrey
PRAGUE, June 23 (Reuters) - 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 -- London Brent <LCOc1> was at
$136.40 per barrel on Monday -- 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 percent 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 percent
against the dollar in the same time.
Inflation there hit a nine-year high of 7.5 percent 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 percent against the dollar, petrol is 40.86 Slovak
crowns ($2.09) per litre, just around 4 percent more dear 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 percent rise since Jan. 1. In Poland, diesel
has leapt 27 percent in the past year, and truckers have planned
a protest for Monday 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 percent in Hungary last month, while the
4.4 percent in Poland is above the central bank's 2.5 percent
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 percent 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 percent against the dollar since
Jan. 1. Fuel retailer Rompetrol's prices have jumped 53-63
percent 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 percent 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."
