Huge surge in food prices

Inflation above GUS flash estimate

Based on GUS data, CPI inflation rose to 12.4% YoY in April from 11.0% in March, running above market consensus and our forecast (11.7%), and GUS’s flash estimate (12.3%). Thus, in April inflation hit its highest level since May 1998, and has been running well above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for 13 months.

Huge surge in food prices

The rise in inflation is mainly accounted for by soaring ‘food and non-alcoholic beverages’ prices (12.7% YoY in April vs. 9.2% in March – the biggest rise since July 2000). Rises in prices have been seen in a very wide range of products, primarily due to continuing strong cost pressure in food manufacturing, mainly driven by rising prices of agricultural commodities, higher costs of energy and labour, with the pressure further aggravated by the war in Ukraine (see AGROmapa of 21/03/2022). Particularly worth noting is a marked acceleration in meat price rises (17.6% YoY in April vs. 9.7% in March), seen both in the prices of poultry (46.7% vs. 32.0%) and pork (15.6% vs. 5.9%). Price rises have been driven by higher demand for meat, as the pandemic is coming to an end, while supply is lower due to low profitability of pig production in recent quarters and losses caused by bird flu in 2021. Given a shortage of meat in the market, farmers can to a larger extent transfer rising fodder prices to further stages of the supply chain, which adds to the price surge. Inflation has also been driven up by higher rises in energy prices (27.3% vs. 24.3%), mainly accounted for by soaring solid fuel prices (up by 76.5% YoY - the highest growth since January 1999 at least). Solid fuel prices continue to see the biggest rises in the inflation basket. Another inflation driver has been higher core inflation, which, in accordance with our estimates, rose to 7.7% YoY in April from 6.9% in March. The rise in core inflation is mainly accounted for by stronger price rises in the following categories: ‘recreation and culture’, ‘miscellaneous goods and services’, ‘restaurants and hotels’, furnishings, household equipment and routine household maintenance’, ‘alcoholic beverages and tobacco’, and ‘health’. The wide scope of the rise in core inflation reflects continuing strong inflationary pressure in Poland’s economy.

Significant upside risk to our inflation path

The inflation data for April, well above our expectations, present a significant upside risk to our forecast of headline inflation standing at 10.8% YoY this year and 6.2% in 2023. We will present our revised inflation scenario in the next MACROmap. Although we maintain our monetary policy scenario for Poland to the effect that the MPC will end its current interest rate hike cycle in July this year with the reference rate standing at 6.50% (see MAKCOpulse of 05/05/2022), the revised inflation path presents a significant upside risk to the scenario.

Today’s data on inflation is neutral for the PLN and yields on Polish bonds.