Inflation is moving towards a peak

Final data on inflation in line with GUS flash estimate

In accordance with the GUS final data, CPI inflation rose to 3.4% YoY in December vs. 2.6% in November, running in line with the GUS flash estimate and significantly above the market consensus (2.9%) and our forecast (3.0%).

Core inflation has reached the highest level since April 2002

The main source of the sharp increase in inflation in December was higher core inflation, which, in accordance with our estimates, rose to 3.2% YoY vs. 2.6% in November, increasing headline inflation by 0.4 pp. It is worth noting that core inflation has thus reached the highest level since April 2002. Its increase resulted from higher price dynamics i.a. in the categories: “other expenses for goods and services” – probably the effect of the rise in prices of civil liability insurance, “transport” (excluding fuels) – the effect of higher prices of transport services (up by 29.4% MoM – mainly due to higher prices of public transport and train tickets), “clothing and footwear”, “communications”, “alcoholic beverages and tobacco products”, “furnishings, household equipment and routine household maintenance”, and “restaurants and hotels”. The structure of core inflation increase in recent months points to growing cost pressure in the Polish economy, visible especially in growing prices of services. This view is supported by higher dynamics of prices of services which rose to 6.1% YoY in December vs. 5.3% in November, hitting the highest level since 2010.

Conducive to the increase in inflation were also higher dynamics of fuel prices (0.0% YoY in December vs. -5.4% in November) and food and non-alcoholic beverages (6.9% vs. 6.5%), while the dynamics of energy prices have not changed in December compared to November and amounted to -1.8%. The sharp increase in the dynamics of fuel prices resulted from last year’s high base effects and the increase in fuel prices in monthly terms due to rising global oil prices. In turn, higher inflation in the category “food and non-alcoholic beverages” was mainly the result of surging prices of pork (23.6% YoY in December vs. 16.1% in November) and deepening shortage of this meat in China. It is worth pointing out here that a visible decrease in the price dynamics was recorded in the prices of vegetables (12.3% YoY vs. 16.0%) being one of the main sources of the higher growth rate of food prices in recent months, where the high base effects from the year before are increasingly visible.

The inflation peak is still to come

In Q1 we expect further increase in headline inflation to 4.2% YoY which will largely result from the rise in electricity prices and the pro-inflationary impact of the sharp increase in the minimum wage with the beginning of 2020. In subsequent quarters inflation will be gradually decreasing due to high base effects and expiring shocks boosting food prices and thus on a yearly average it will amount to 2.9% in the whole 2020 vs. 2.3% in 2019.

Today’s final inflation data in line with GUS flash estate are neutral for PLN and yields on Polish bonds.