New taxes, higher inflation

Inflation well above the market expectations

In accordance with the GUS data, CPI inflation increased from 2.4% YoY in December to 2.7% YoY in January, running above the market consensus (2.4%) and slightly above our forecast (2.6%). Data on January inflation is incomplete yet, and it is only preliminary due to the annual revision of weights in the inflation basket. Thus, the possibility of drawing conclusions based on data is limited. Complete data on price growth in individual categories in January and February 2021 including the revised inflation index will be published in March.

New taxes, higher inflation

In accordance with incomplete data published by the GUS, inflation was driven up by higher growth in such price categories as “housing” (6.4% YoY in January vs. 6.2% in December) and “transport” (-3.7% vs. -5.7%), while lower growth in category “food & non-alcoholic beverages and alcoholic beverages & tobacco” had the opposite effect (1.3% in January vs. 1.5% in December). In our opinion, the higher price growth rate in the “housing” category was primarily driven by a growth in electricity and refuse collection prices. At the same time, the growth rate in the "transport" category was driven up by a higher growth in fuels prices resulting from growing oil prices worldwide. In the first half of February 2021, Brent oil prices expressed as PLN were ca. 3.4% higher than in the same period of 2020. As regards the data structure, particularly noteworthy is the decline in the price growth rate in the “food & non-alcoholic beverages and alcoholic beverages & tobacco” category. The decline took place despite new taxes on sugar and on the so-called miniatures (less-than-300-ml bottles of alcohol), which are in force since 1 January 2021. The sugar tax was driving the price growth up in the “non-alcoholic beverages” category, while the tax on the so-called miniatures was driving the growth up in the “alcoholic beverages” category. Furthermore, in our opinion, the trade tax effective from 1 January 2021 was also driving food prices up. It shows that there must have been a significant decline in price growth rates in some of the food-related categories, most likely “meat” and “vegetables”, which more than set off the abovementioned positive impact of taxes adopted in January on the price growth rates. In accordance with incomplete data published by the GUS, we estimate that the core inflation in January grew to ca. 4.0%, which additionally drove the total inflation up.

Inflation to reach a local minimum in Q1 2021

In Q1 2021 we expect the inflation to fall to 2.2% YoY comparing to 2.8% in Q4 2020, and the fall will be supported by further deceleration in the price growth rate in the “food & non-alcoholic beverages” category as well as by lower core inflation. Strong effects of last year's high base will be the main factor contributing to lower core inflation (see MACROmap of 18/1/2021). We believe that inflation will increase to 2.8% YoY in Q2 and will remain close to this level until the end of 2021. The increase in inflation will be driven by a strong pick-up in fuel price growth rate, as forecasted by us, as well as an increase in food and non-alcoholic beverages price growth rate in H2, which will more than offset the decline in core inflation. As a result, we forecast total inflation to decline to 2.6% in 2021 vs. 3.4% in 2020. Our inflation forecast is subject to considerable uncertainty due to the expected significant changes in the weighting system used by the GUS to be introduced from 2021, which will reflect the disruptions to the household inflation basket caused by the COVID-19 pandemic.

Today's higher-than-expected January inflation data is slightly positive for the PLN and bond yields.