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GDP clearly above expectations

Final data on inflation in line with the GUS flash estimate

In accordance with the GUS data, CPI inflation rose to 1.6% YoY in April vs. 1.3% in March, running in line with the GUS flash estimate and above our forecast equal to the market consensus (1.5%).

Higher dynamics of fuel and food prices boosted inflation

The main factor behind the increase in inflation (by 0.2 pp) were higher dynamics of fuel prices which rose to 1.4% YoY in April vs. -2.3% in March. It resulted from a sharp monthly increase in fuel prices triggered by the rise in global oil prices observed in recent weeks. The average price of a barrel of Brent oil expressed in PLN rose by 9.0% in April compared to March. Conducive to higher inflation (up by 0.1 pp) were also higher dynamics of the prices of food and non-alcoholic beverages, which amounted to 4.1% YoY vs. 3.7% in March. Its increase was largely due to the low base effect from the year before in the category "vegetables” related to the last year's frost in the south of Europe (a sharp monthly increase in prices was recorded in March 2017 and, consequently, the April's seasonal rise in prices was exceptionally small last year). The faster growth of food prices resulted also from higher annual price dynamics in the categories "bread and cereals” and "oils and fats”. Lower growth rate of prices in the category "meat”, mainly due to falling prices of pork, had an opposite impact. On the other hand, conducive to a decrease in inflation was lower core inflation, which, according to our estimates, amounted to 0.6% YoY in April vs. 0.7% in March. The decrease in core inflation resulted mainly from lower dynamics of prices in the categories "transport, excluding fuels” (the high base effect from the year before related to rise in prices of air tickets), "communication” (most likely further cuts of prices of telecommunication services), and "other expenses on goods and services”.

Rising oil prices pose an upside risk to our inflation scenario

In our view, further decrease in core inflation indicates continuing lack of inflationary pressure in the economy. However, we expect a slight increase of core inflation in subsequent months. It will be related to growing cost and demand pressure with the forecasted by us moderately fast increase in nominal wages. In addition, until July 2018, the increase in inflation will be supported by the low base effects from the year before in the category "fuels”. An upside risk to our fuel price profile is the increase in global oil prices observed in recent weeks and resulting i.a. from increased geopolitical tension in the Middle East following D. Trump's decision to exit the Iran nuclear deal as well as lower oil production in Venezuela due to the political and economic crisis in that country. Nevertheless, we maintain our view that the above-mentioned factors, being conducive to higher inflation, will be more than offset by the forecasted by us decrease in the dynamics of food prices, which will run slightly below zero in Q4 2018. Consequently, we forecast that inflation will decrease to 1.4% YoY in 2018 vs. 2.0% in 2017. The prospect of inflation running clearly below target in subsequent quarters supports our scenario in which the first hike of interest rates by the NBP (by 25bp) will take place no sooner than in November 2019. The remarks of the NBP Governor, A. Glapiński, who does not anticipate a change of interest rates within the next two years (see MACROpulse of 11/4/2018), pose a downside risk to our scenario.

GDP clearly above expectations

In accordance with GUS data published today, real GDP growth rate stood at 5.1% YoY in Q1 vs. 4.9% in Q4 2017, running above our forecast (4.7%) and the market consensus (4.8%). Seasonally-adjusted GDP rose by 1.6% QoQ in Q1 vs. a 1.0% increase in Q4. The GUS data are a flash estimate. Full GDP data including its structure will be published towards the end of May.

We believe that the main factor behind GDP growth in Q1 were higher consumption dynamics. Despite the expected by us acceleration in investments growth due to the reduction of weight of fixed capital formation in GDP between Q4 and Q1, their contribution to GDP growth has most likely decreased in Q1. In addition, the data released yesterday on the balance on foreign trade signal that the contribution of net exports to GDP growth has decreased between Q4 and Q1.

We believe that Q1 2018 was the peak of the current business cycle. We expect that in subsequent quarters the GDP growth rate will continue to reach relatively high levels but will stay within a weak downward trend. Today's data pose an upside risk to our forecast of the average yearly GDP growth in 2018 (4.3% YoY in 2018 vs. 4.6% in 2017).

Today's, consistent-with-the-flash-estimate data on the April inflation are neutral for PLN and yields on Polish bonds. On the other hand, the higher-than-expected data on the Polish GDP are slightly positive for PLN and yields on Polish bonds.