Inflation in target only for a moment

Final data on inflation in line with GUS flash estimate

In accordance with the final GUS data, CPI inflation in November rose to 2.5% YoY vs. 2.1% in October, running in line with the flash estimate by GUS and above the market consensus (2.4%) and our forecast (2.3%).

Food and fuels boosted inflation

The increase in inflation (by 0.1 pp) in November was due to higher dynamics of prices in the category "food and non-alcoholic beverages” (6.0% YoY in November vs. 5.4% in October). According to the GUS statement, the sharpest increase in food prices was recorded for products in the category "milk, cheese, eggs” (up by 4.9% MoM) which, in accordance with our estimates, increased the annual dynamics of the prices of food and non-alcoholic beverages by 0.6 pp. Markedly higher prices in this category resulted mainly from a sharp increase in the prices of eggs (by 30.0% MoM) due to a temporary increase in foreign demand for Polish exports of eggs following many cases of eggs contaminated by filopronil detected in the countries of Western Europe (i.a. in Netherlands, being the largest EU exporter of eggs). It can be concluded based on the GUS statement that higher dynamics of food prices in annual terms were also recorded for the prices of bread, meat, fruit, vegetables, and beverages.

The increase in inflation (up by 0.1 pp) was also due to higher dynamics of fuel prices (4.7% YoY in November vs. 1.6% in October), following a rise in their prices in monthly terms in November (by 2.9%). It was a consequence of the continuing in recent months rise in the prices of oil in global markets. Conducive to higher dynamics of fuel prices was also the low base effect from the year before (in November 2016 fuel prices dropped by 0.1% MoM).

The increase in inflation (up by 0.1 pp) resulted also from higher core inflation, which in accordance with our estimates rose to 0.9% YoY in November vs. 0.8% in October. Higher core inflation resulted i.a. from higher dynamics of prices in the category "recreation and culture” (1.7% YoY in November vs. 1.4% in October), "furnishings, household equipment, and routine household maintenance” (0.3% YoY vs. -0.1%), and "restaurants and hotels” (2.7% YoY vs. 2.5%). In our view, the only slight increase in core inflation reflects the continued lack of inflationary pressure in the economy.

The sources of increase in inflation have dried up

In subsequent months we expect a decrease in the dynamics of food and fuel prices with a moderate increase in core inflation. Consequently, we forecast that inflation will fall to 1.7% in 2018 vs. 2.0% in 2017. Our detailed revised inflation scenario has been presented in today's MACROmap.

Today's final data on the November inflation are neutral for PLN and prices of Polish bonds.