Key facts
- Turkey's annual inflation accelerated for a second consecutive month in May due to a global energy shock linked to the Iran conflict.
- Algebris Investments is purchasing credit default swaps on Turkish bonds due to increased credit risk.
- Kazakhstan's National Bank unexpectedly cut its base rate by 100 basis points to 17%.
- Kazakhstan aims for single-digit inflation by 2026 and has revised its forecast to 9-11%.
- Mexico's annual inflation rate decelerated to 3.94% in May, returning to the central bank's target range.
- The Czech Republic's CPI inflation eased to 2.1% year-over-year in May, below market expectations.
- Dallas Fed President Lorie Logan stated that rising oil prices contribute to renewed inflationary pressures.
- India's inflation likely climbed to 4.0% in May, driven by rising vegetable and fuel costs.
- Ghana's annual inflation rate accelerated to 3.7% in May, driven by a rise in food prices.
- Serbia's central government budget recorded a deficit of RSD 99.6bn in January-April, a 27.8% year-on-year widening.
- 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.
Global economic indicators present a varied landscape, with inflation rates and central bank policies diverging across nations. In Turkey, annual inflation accelerated for a second consecutive month in May, directly influenced by a global energy shock attributed to the US-Israeli conflict involving Iran. This situation has led Algebris Investments to purchase credit default swaps on Turkish bonds, signaling heightened concerns over the country's creditworthiness amid amplified economic strains from the Iran war. Policymakers in Turkey face a crucial interest-rate decision next week.
Conversely, several countries are experiencing a deceleration in inflation. Mexico's annual inflation rate eased to 3.94% in May, marking the second consecutive month of decline and returning to the central bank's target range, a trend attributed to seasonal factors and lower food prices. The Czech Republic reported a significant slowdown in its consumer price index (CPI) inflation, which eased to 2.1% year-over-year in May, falling below market expectations. This slowdown was broad-based, affecting both volatile prices and core inflation, which is estimated to have decreased to 2.8% year-over-year. In Southeast Asia, inflation in two nations has unexpectedly eased, potentially allowing central banks to pause interest rate hikes as fuel price pressures diminish.
Central banks are adjusting their monetary policies in response to these varied inflation dynamics. Kazakhstan's National Bank (NBK) unexpectedly cut its base rate by 100 basis points to 17%, despite acknowledging prevalent inflationary tendencies. The NBK aims for single-digit inflation by 2026, revising its forecast to 9-11%, and upgraded its 2026 GDP growth forecast to 4.5-5.5%. Poland's central bank, however, believes current interest rates are 'high enough' to maintain price stability, even as global energy costs begin to impact domestic inflation. Sweden's Riksbank also has room to hold off on borrowing-cost increases as core inflation increased at a slower pace than expected.
Potential oil shocks, particularly those linked to the Iran conflict, are a significant concern for monetary policy. New research suggests the US economy is less vulnerable to employment risks from oil shocks than in the 1970s, implying the Federal Reserve may prioritize inflation over jobs in such a scenario. Dallas Fed President Lorie Logan noted that rising West Texas oil prices are contributing to renewed inflationary pressures, suggesting the Fed might consider further interest rate hikes. India's inflation likely climbed to 4.0% in May, driven by rising vegetable and fuel costs, prompting vigilance from its central bank. Ghana's annual inflation accelerated to 3.7% in May due to food prices, though its central bank maintained its interest rate, expecting inflation to remain within its target band.
Economic growth figures also show divergence. Croatia's GDP growth slowed to 2.2% year-over-year in the first quarter, falling short of expectations. The Czech Republic's Q1 2026 GDP growth was revised upward to 2.2%, though growth potential remains constrained by a slow recovery in key Eurozone trading partners. South Africa's economy expanded marginally more than anticipated in the first quarter, overcoming initial impacts from the Iran war, but underlying weaknesses in domestic demand persist. Israel's industrial production fell 1.1% in the first quarter, linked to the conflict with Iran and Hezbollah, although sales figures and business confidence showed improvement.