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Inflation growth is not over yet

Growing prices of vegetables and pork drove the inflation up

In accordance with data published by the Polish Central Statistical Office (GUS), CPI inflation went up to 2.4% YoY in May vs. 2.2% in April, which was slightly above the growth rate predicted by GUS in its flash estimate (2.3%). In our last MACROmap of 10 June 2019 we noted that the final inflation may be higher than predicted in the GUS flash estimate.

The total inflation growth was driven by a stronger increase in the prices of food and non-alcoholic beverages (5.0% in May vs. 3.3% in April). It was connected to a large extent with a stronger increase in the prices of vegetables (22.6% YoY in May vs. 16.0% in April in consequence of last year’s drought) and meat (6.2% in May vs. 4.1% in April); the latter being mainly driven up by higher prices of pork (12.1% in May vs. 7.1% in April). A strong increase in the prices of pork results from a marked drop in global production due to ASF in China, which is the largest producer of pork. This issue will be discussed in detail in the next AGRImap. On the other hand, inflation was driven down by a slower growth in the prices of fuels (4.1% in May vs. 8.6% in April). It was also driven down by lower core inflation which, in accordance with our estimates, dropped to 1.6% YoY in May vs. 1.7% in April. This slight decrease resulted from the prices growing less quickly in the "transportation (excl. fuels)”, “communications” and “other expenses on goods and services” categories. Despite a slight decrease in May, core inflation shows a gradually increasing cost pressure in the Polish economy in the last couple of months.

Inflation growth is not over yet

In accordance with our revised forecast, in the quarters to come we will see a continuing gradual inflation growth driven by a stronger increase in the prices of foods and higher core inflation (see MACROmap of 10/6/2019). We believe that inflation will reach its local peak at 3.0% YoY in Q1 2020. Consequently, we expect the price growth rate for 2019 to increase to 2.2% YoY vs. 1.6% in 2018, and then to decline slightly to 2.0% in 2020. This goes in line with our scenario, in which interest rates in Poland will remain stable at least until the end of 2020.