Inflation gets closer to the peak

Inflation slightly below the flash estimate

In accordance with the data published by the GUS, CPI inflation went up to 15.5% in June vs. 13.9% in May, but still was below the growth rate predicted by the GUS in its flash estimate (15.6%). Inflation was mainly driven up by a quicker growth in the prices of fuels (46.7% YoY in June vs. 35.4% in May), which resulted both from an increase in the prices of oil in the global markets and from the weakening of the PLN against the USD. Headline inflation was driven up by a stronger price growth in the “energy” category (35.1% YoY vs. 31.4%), which resulted primarily from a stronger price growth in the “liquid and solid fuels” category (122.0% vs. 101.5%, representing the strongest growth since at least January 1999). As regards the inflation basket, “liquid and solid fuels” are still the category where the strongest price growth can be seen.

Higher core inflation also contributed to the annual inflation increase in June. In accordance with our estimates, core inflation rose to 9.2% in June comparing to 8.5% in May, reaching its highest level since April 2000. The rise resulted from a stronger price growth in such categories as “restaurants and hotels”, “recreation and culture”, “furnishings, household equipment and routine household maintenance”, “communication”, “health”, “clothing and footwear”, or “miscellaneous goods and services”. Core inflation rose across so many categories due to the combined secondary impact of the energy price growth, the weakening of the PLN, and the salary pressure.

Headline inflation was also driven up by a stronger price growth in the "food and non-alcoholic beverages" category (14.2% YoY in June vs. 13.5% in May, the strongest growth since at least January 1999). The main reason behind the stronger growth in the prices of food is the continuing cost pressure in the food processing sector connected, among others, with a strong increase in the prices of agricultural commodities and energy seen in H1 2022 (largely due to the war in Ukraine) and the growing labour costs. The product categories where we could see a significant price growth comparing to May 2022 include flour (38.0% YoY vs. 34.0%), milk, cheese and eggs (17.5% vs. 14.7%), oils and fats (35.4% vs. 32.0%) and sugar (39.3% vs. 36.4%).

Inflation still to reach its peak

Today’s data is consistent with our forecast, in which inflation will reach its peak at 15.9% in September 2022, and will continue to run above 14% until February 2023 (see MACROmap of 04/07/2022). Our scenario is strongly supported by the PLN weakening significantly against the main currencies over the last couple of weeks, which will be driving the inflation up. We believe that the persistence of inflation, the continuing, strong growth in salaries and the PLN depreciation pressure connected with the interest rates increase in the United States and the Eurozone will make the Monetary Policy Council decide in favour of further interest rate hikes. In accordance with our revised scenario, the MPC will raise interest rates in its next two meetings by 75bps in total, and the NBP reference rate hiking cycle will come to an end in October, with the rate standing at 7.25%.

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