Inflation is growing due to higher food prices

Final data on inflation in line with GUS flash estimate

In accordance with the final GUS data, CPI inflation rose to 0.0% YoY in November vs. -0.2% in October, running in line with the flash GUS estimate and our forecast equal to the market consensus.

Inflation is growing due to higher food prices

The increase in inflation (by 0.2 pp) was due to higher dynamics of prices in the category "food and non-alcoholic beverages” (1.2% YoY in November vs. 0.4% in October). Price growth accelerated in annual terms i.a. in the following sections: "milk, cheese, and eggs”, "fruit”, "vegetables”, and "fish and seafood”. The wide range of food price growth supports our scenario, in which the downward trend in global food prices has permanently reversed at the beginning of 2016. Conducive to higher inflation (by 0.1 pp) was also higher core inflation, which, in accordance with our estimates, amounted to -0.1% YoY in November vs. -0.2% in October. According to GUS, the increase in core inflation was connected with a rise in insurance fees (up by 1.4% MoM). In our view, higher insurance prices are largely due to the rise in prices of motor vehicle insurance (civil liability insurance). On the other hand, conducive to decrease in inflation (down by 0.1 pp) was lower growth of fuel prices (0.7% YoY in November vs. 1.8% in October).

Price growth rate will be positive in December

We forecast that the price growth rate will be positive in December 2016 and the average yearly inflation in the whole 2016 will run at -0.6% YoY vs. -0.9% in 2015. We forecast that inflation will increase to 1.5% YoY in Q1 2017 vs. 0.0% in Q4 2015, due to low base effects for fuel and energy price dynamics (electricity and gas price cut in January 2016). In subsequent quarters of 2017, we expect a relative stabilization of inflation within the range of 1.3-1.7% (1.5% on a yearly average). On the one hand, the closing of the output gap will be conducive to further increase in core inflation. On the other hand, the gradually abating low base effects for fuel prices will limit the increase in CPI indicator. In H1 2017, conducive to higher inflation will also be higher dynamics of food prices, related to the continuation of the upward phase of the cycle on the pork and milk market. The global oil price developments pose a significant risk in the forecast relevant horizon (see MACROmap of 12/12/2016).

Inflation data neutral for PLN and bonds yields

Today's data on inflation, consistent with the GUS flash estimate and market consensus, are neutral for PLN and yields on Polish bonds, we believe.