CPI inflation again below the target

Final data on CPI inflation above GUS flash estimate

In accordance with the final GUS data, CPI inflation in December dropped to 2.1% YoY vs. 2.5% in November, running in line with our forecast and above the flash estimate by GUS equal to the market consensus (2.0%).

Lower dynamics of fuel prices as the main reason for inflation decline

The main factor behind the decrease in inflation (by 0.3 pp) was slower growth of fuel prices (-1.3% YoY in December vs. 4.7% in November), related to high base effects from 2016 (in December 2016 fuel prices rose by 5.3% MoM). The decrease in inflation in December (by 0.1 pp) was also due to slower price increase in the category "food and non-alcoholic beverages” (5.4% YoY in December vs. 6.0% in November). We believe that decrease in annual food inflation was recorded i.a. in the categories "meat", "oils and fats", "fruit", "vegetables", and "sugar".

As we expected, core inflation has not changed in December compared to November and amounted to 0.9%. A slight decrease in price dynamics in the category "clothing and footwear” (-4.8% YoY in December vs. -4.6% in November) and "health” (1.8% YoY vs. 1.9%) has been offset by higher growth in the category "restaurants and hotels” (2.8% YoY vs. 2.7%). In our view, the stabilization of core inflation reflects lack of inflationary pressure in the economy.

Price growth will become increasingly slower

In subsequent months we expect a further 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 (see MACROmap of 11/12/2017).

Today's final data on the December inflation are slightly positive for PLN and yields on Polish bonds.