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CEE ECONOMY Polish inflation spike piles pressure on cenbank

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  • Polish rate hikes seen continuing
  • Polish flash CPI at 7.7% y/y in November, vs fcast 7.4%
  • Poland's Q3 GDP at 5.3% y/y, above first estimate
  • Czech economy grows 3.1% y/y, faster than flash estimate

Nov 30 (Reuters) - Polish inflation jumped more than expected in November, with the headline rate hitting a two-decade high of 7.7%, according to preliminary data on Tuesday, fuelling hopes of tighter monetary policy from the central bank.

Poland's central bank, which began policy tightening later than some peers in central Europe, has delivered two rate hikes in the past two months, lifting its main rate to 1.25% as it seeks to rein in an inflation surge.

"Inflationary pressure remains high," Grzegorz Maliszewski, chief economist at Bank Millennium, said. "Current readings will put pressure on the (central bank) to continue rate hikes."

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The surge in prices around central Europe is being driven by external factors such as global supply chain problems that have hampered economic growth and rising energy costs, as well as strong consumer demand and tight labour markets at home.

The Czech central bank has been more aggressive than its CEE peers in battling inflation, having lifted its base interest rate by 250 basis points since June. That includes a 125 bps hike this month, the biggest in nearly 25 years.

Hungary's central bank has raised its base rate by 150 bps to 2.1%, also since June.

Analysts said the Polish inflation surprise supports further hikes. Erste Group Bank said a 75 bps rise could be in play, but risks from a new coronavirus variant could raise caution.

"We continue to think the peak of the current tightening cycle will be reached at 2.5%-3.0% by mid-2022," Erste said.

GDP FLASH ESTIMATES RAISED

Strong domestic demand is a key driver for growth, which is slowing, while the industry faces constraints linked to global supply chain issues.

Poland's economy expanded 5.3% year-on-year in the third quarter, above an earlier flash estimate but at half the growth rate in the second quarter, updated data showed on Tuesday. On a quarterly basis, gross domestic product grew 2.3%.

Similarly, in the Czech Republic, updated data showed the economy fared better than expected last quarter, with a 1.5% quarterly rise and a 3.1% annual increase, both above flash estimates. read more

The Czech and Hungarian economies, unlike Poland's, have been more affected by auto sector issues stemming from semiconductor shortages, with Czech carmakers' output volumes at their lowest since 2014 in the first nine months of the year.

Petr Sklenar, an economist at J&T Banka in Prague, said a rise in inventories helped offset Czech auto sector issues. He estimated the Czech economy would grow sequentially in the fourth quarter.

"There was quite a strong rebound in domestic demand, and that is a positive sign," he said.

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Reporting by Jason Hovet in Prague and Anna Wlodarczak-Semczuk in Warsaw; Editing by Subhranshu Sahu and Ramakrishnan M.

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