Inflation pressure still strong

Inflation in line with GUS flash estimate

According to final GUS data, Poland's CPI inflation rose to 17.2% YoY in September vs. 16.1% in August, running in line with the flash estimate by GUS and markedly above the market consensus (16.5%) and our forecast (16.1%). Thus, inflation reached its highest since February 1997, and was markedly above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for 18 consecutive months.

A strong rise in core inflation

Inflation was driven up by a stronger growth in prices in the “food and non-alcoholic beverages” category (19.3% YoY in September vs. 17.5% in August). 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 high prices of agricultural commodities and growing energy and labour costs (see AGROmapa of 19/09/2022). Sugar (106.8% YoY in September; largely due to panic buying), vegetable fats (48.7%), flour (47.7%), poultry meat (40.4%), and butter (33.6%) were those product categories where the strongest growth was reported. Inflation was also driven up by a stronger price growth in the “energy” category (44.3% vs. 40.3%), which resulted primarily from a stronger price growth in the “liquid and solid fuels” category (172.2% vs. 156.9%, 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 according to our estimates rose from 9.9% YoY in August to 10.7% YoY in September, and reached the highest level since January 1999. Its growth resulted from a higher growth in prices in such categories as “clothing and footwear” (with prices going up for both clothing and footwear, which is connected, among others, with PLN depreciation seen over the last couple of months), “recreation and culture” (mainly due to higher prices of recreation- and culture-related services), “miscellaneous goods and services" (due to the growing prices of personal hygiene and beauty products among other things), “education”, and “restaurants and hotels”. In our opinion, core inflation rising strongly in so many categories suggests that inflation pressure seen across the Polish economy is still strong. Headline inflation was, however, also driven down by a slower growth in the prices of fuels (18.3% vs. 23.3%), resulting from the oil prices falling in the global market.

Inflation will continue to rise in the coming months

We continue to believe that headline inflation will reach its local peak in December at 18.4% YoY, and then it will start going down gradually. Consequently, we forecast that the inflation for 2022 will rise to 14.5% YoY vs. 5.1%, and then it will go down to 10.4% in 2023. In our scenario, we have assumed that the Anti-inflationary Shield programme will stay in force until the end of 2023 (see MACROmap of 10/10/2022). We also believe that further, significant inflation growth that we expect to take place in the coming months as a result of the combined impact of growth in energy prices, the second-round inflation effects of such growth, and loose monetary and fiscal policy will make the Council raise interest rates again. In our scenario, we have assumed that the MPC will raise interest rates twice, i.e. in November and December, by 25bps in each case, and then the hiking cycle will come to an end with the reference rate reaching 7.25%.

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