Key facts
- Turkey's annual inflation accelerated for a second consecutive month in May due to an energy shock linked to the US-Israeli conflict involving Iran.
- Algebris Investments is purchasing credit default swaps on Turkish bonds due to concerns over creditworthiness amplified by the Iran war.
- Kazakhstan's National Bank unexpectedly cut its base rate by 100 basis points to 17%, aiming for single-digit inflation by 2026.
- Dallas Fed President Lorie Logan notes rising oil prices are contributing to renewed inflationary pressures in the US.
- India's inflation likely climbed to 4.0% in May, driven by rising vegetable and fuel costs.
- Czech consumer price index (CPI) inflation eased to 2.1% year-over-year in May, falling below market expectations.
- Ghana's annual inflation rate accelerated to 3.7% in May, primarily driven by a rise in food prices.
- Mexico's annual inflation is expected to have slowed to 4.03% in May, remaining above the central bank's 3% target.
- Serbia's central government budget deficit widened by 27.8% year-on-year to RSD 99.6 billion in January-April.
- Poland's central bank believes current interest rates are sufficient to maintain price stability.
- Croatia's GDP growth decelerated to 2.2% year-over-year in the first quarter.
- Israel's industrial production decreased by 1.1% in the first quarter, linked to the conflict with Iran and Hezbollah.
Global inflation dynamics present a varied landscape, with several countries experiencing accelerated price pressures driven by energy and food costs, while others report slowdowns. Turkey's annual inflation accelerated for a second consecutive month in May, influenced by a global energy shock linked to the US-Israeli conflict involving Iran, placing policymakers in a difficult position ahead of an upcoming interest-rate decision. Algebris Investments has increased its concern over Turkey's creditworthiness by purchasing credit default swaps on Turkish bonds, anticipating a higher probability of a credit event exacerbated by economic strains from the Iran conflict.
In contrast, some nations are witnessing disinflationary trends. Czech consumer price index (CPI) inflation eased to 2.1% year-over-year in May, falling below market expectations and showing a broad-based slowdown in both volatile and core inflation. Similarly, Sweden's core inflation rate increased at a slower pace than anticipated in May, providing the Riksbank with room to hold off on borrowing-cost increases. Indonesia's year-on-year CPI inflation accelerated to 3.08% in May, exceeding forecasts, primarily driven by rising food prices, personal care, and transport costs, despite Bank Indonesia having previously raised rates by 50 basis points. India's inflation likely climbed to 4.0% in May, nearing the Reserve Bank of India's target, driven by rising vegetable and fuel costs, signaling a potential shift from recent benign levels.
The US Federal Reserve faces a complex environment, with research suggesting the economy is less vulnerable to employment risks from oil shocks than in the 1970s. An Iran war-sized oil shock would significantly increase inflation but have a negligible effect on national employment, potentially allowing the Fed to focus on price pressures. Dallas Fed President Lorie Logan indicated that rising oil prices are contributing to renewed inflationary pressures, suggesting the Federal Reserve may need to consider further interest rate hikes. The US-Iran standoff also impacts market sentiment and global equities.
Central banks in other regions are making policy adjustments. Kazakhstan's National Bank (NBK) unexpectedly cut its base rate by 100 basis points to 17%, despite acknowledging prevalent inflationary tendencies, aiming for single-digit inflation by 2026 and upgrading its 2026 GDP growth forecast to 4.5-5.5%. Ghana's annual inflation rate accelerated to 3.7% in May, driven by food prices, but the central bank maintained its interest rate, expecting inflation to remain within its target band. Mexico's annual inflation is expected to have slowed to 4.03% in May, remaining above the central bank's target, with analysts anticipating the central bank will hold its benchmark interest rate at 6.50%. Chile's consumer prices increased less than anticipated, with the central bank closely watching the inflationary impact of fuel costs ahead of its interest rate decision. Poland's central bank believes current interest rates are 'high enough' to maintain price stability, despite rising global energy costs impacting domestic inflation.
Economic performance indicators also show divergence. Croatia's GDP growth decelerated to 2.2% year-over-year in the first quarter, falling short of expectations. Czech Republic's Q1 2026 GDP growth was revised upward to 2.2% year-over-year, though the Iran conflict impacted headline growth. Israel's industrial production decreased by 1.1% in the first quarter, linked to the conflict with Iran and Hezbollah, though sales figures and business confidence showed improvement. Serbia's central government budget recorded a deficit of RSD 99.6 billion for January-April, a widening of 27.8% year-on-year, with revenues increasing by 10.3% and expenditures by 12.1%. The Czech Republic's state budget reported a deficit of CZK 170.2 billion for January-May, with May's deficit increasing 44.2% year-on-year.