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Inflation growth is not over yet

Inflation in line with GUS flash estimate

According to GUS data, CPI inflation in Poland rose to 16.1% YoY in August vs. 15.6% in July, in line with the GUS flash estimate and markedly above the market consensus (15.4%) and our forecast (15.2%). Thus, inflation reached its highest since March 1997, and remained significantly above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for seventeen consecutive months.

Inflation pressure still strong

Inflation was mainly driven up by a stronger growth in prices in the “food and non-alcoholic beverages” category (17.5% YoY in August vs. 15.3% in July). The increase in the prices of food could be seen in many categories, the main reason being the continuous, strong cost pressure in the food processing industry connected, among others, with the growing prices of agricultural commodities and higher energy and labour costs (see AGROmapa of 13/06/2022). Sugar (109.2% YoY in August; largely due to panic buying), vegetable fats (49.0%) and flour (44.6%) were those product categories where the strongest growth was reported. Inflation was also driven up by a stronger price growth in the “energy” category (40.3% vs. 37.0%), which resulted primarily from a stronger price growth in the “liquid and solid fuels” category (156.9% vs. 131.2%, 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. Headline inflation was also driven up by higher core inflation, which we estimate to have risen from 9.3% YoY in July to 9.9% YoY in August, reaching its highest since March 2000. The rise resulted from a stronger price growth in such categories as: “furnishings, household equipment and routine household maintenance” (among others, due to rising prices of cleaning and maintenance products), “miscellaneous goods and services” (in consequence of a strong growth in the prices of personal hygiene and beauty products), “recreation and culture” (among others, due to higher prices for package holidays abroad), “alcoholic beverages and tobacco” or “clothing and footwear”. In our opinion, core inflation rising in so many categories suggests that inflation pressure seen across the Polish economy is still strong. Headline inflation was driven down by a slower growth in the prices of fuels (23.3% vs. 36.8), resulting from oil prices continuing to fall in the global market.

Inflation growth is not over yet

Today’s data is consistent with our forecast for inflation, which says that inflation will reach its peak in October 2022 at 17.5% YoY and then stay above 16% until February 2023 (see MACROmap of 05/09/2022). We expect that the coming data, indicating at the economic growth slowing down increasingly amidst persistent, high inflation will make the Council raise the interest rates once again by 25bp in October 2022, and it will be the end of the monetary policy tightening cycle in Poland. However, it might happen that the Council might make a one-month break in the interest rate hiking cycle, and then increase the rates by 25bp in November instead of October (see MACROmap of 12/09/2022).

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