End of an easy ride?
The złoty's 24-percent rise against the dollar last year and generally firming currencies helped cap the costs of oil imports in the region. However, economists say this effect is now beginning to wear off as the CEE currencies weaken moderately against the rebounding dollar, in which oil is priced.
"Appreciating currencies have helped contain the impact of high oil prices, but this effect is slowly disappearing and what up to now has been a minor problem will become a greater worry," said regional economist at BNP Paribas Michał Dybuła.
The region has been helped by its lower dependence on oil and higher use of other energy sources such as natural gas and coal than in the rest of the European Union. Analysts highlight how Eastern Europeans drive fewer cars and rely more on coal-fired power plants for electricity than their euro zone peers.
For Poland, the region's biggest economy, the Czech Republic, Slovakia and EU candidate Bulgaria, oil accounts for a fifth or less of total energy use compared with a European Union average above 30 percent, according to data from the International Energy Association.
As a result, while the European Central Bank has sharpened its anti-inflationary rhetoric over the past months and recently cut its eurozone growth forecasts, the eastern and central European region has remained optimistic about the price outlook.
Economists say a high share of fresh food in consumer spending has helped offset the impact of costly oil during the summer months when food prices fall. But they warn the effect will be the opposite when a seasonal rebound in food prices coincides with a peak in energy use.
Poland and Hungary have seen continuous rate easing in past months, while Czech and Slovak central banks have held rates at record lows near eurozone levels.
With the exception of Poland, where investment is slow to pick up in this election year, the region's economies expect to meet their growth targets this year after a buoyant 2004.
In contrast to the euro area, where politicians have scrambled to find ways of softening the blow to consumer spending and confidence, such as petrol tax cuts, governments in central and eastern Europe have largely remained hands-off. In fact, until last week's surprise cut in fuel tax the Finance Ministry in Warsaw had contemplated raising the fuel tax to make up for costly pre-election tax cuts and spending increases passed by parliament.
But hefty rises in fuel prices this year, up by more than 20 percent in some countries, aggravated in recent days by worries over global output in the wake of Hurricane Katrina, have put oil back on the agenda.
In Poland, politicians of all colors called for a cut in petrol tax to ease the burden for the consumers and Warsaw became the first government to agree to this, lowering the excise from September 15 until the end of this year. (Reuters)
