The sharpest monetary erosion was in the Baltic countries and Central and Eastern Europe. According to the Harmonised Index of Consumer Prices (HICP), consumer prices rose by 23.2% in Estonia, 21.3% in Latvia and 20.9% in Lithuania.
The inflation environment caused by the war is forcing central banks to raise interest rates. Hungary has the highest base rate in the region (11.75%), following the central bank’s August rate hike (100 basis points).
In an environment of higher interest rates and higher inflation, there is a trend towards a preference for premium Hungarian government bonds with above-inflation yields over those with fixed yields.