A SURGE in price growth in Eastern Europe has opened a rift between central banks that have launched rate hikes to battle inflation and populist governments trying to defend a strong economic recovery.

The standoff is most apparent in Hungary and the Czech Republic, where national elections have complicated the task of central banks, which have led the way in the European Union (EU) in monetary tightening. Both have raised their key rates by more than a percentage point since June.

Tight labor markets and expansionary fiscal policies have added to global pressures on inflation, which economists say could haunt the EU’s east longer than initially believed.

“Central and Eastern Europe is one of the regions of the world where we think that the risk of sustained higher inflation in the next few years is greatest,” Capital Economics analyst Liam Peach said.

Facing the prospect of a close election next year after three successive landslides since 2010, Hungarian Prime Minister Viktor Orban has offered voters handouts in defiance of central bank calls for fiscal restraint.

There was a similar standoff before an Oct. 8-9 election in the Czech Republic in which Prime Minister Andrej Babis lost power. He had criticized the central bank’s biggest rate rise in over two decades as harmful for the economy.

Poland’s central bank unexpectedly increased rates this month to tackle inflation in the medium term.(SD-Agencies)