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One digit inflation only thanks to the Anti-inflation Shield

Inflation below the market expectations

In accordance with the GUS data, CPI inflation increased from 8.6% YoY in December 2021 to 9.2% in January 2022, running below the market consensus (9.5%), but in line with our forecast. Thus, inflation reached its highest level since November 2000, and was above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for ten consecutive months. 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 2022 including the revised inflation index for January will be published in March.

Higher core inflation as the main reason behind inflation rise

In accordance with incomplete data published by the GUS, inflation in January was mainly driven up by higher core inflation, which we estimate to have increased from 5.3% YoY in December 2021 to 6.1% in January 2022, thus having reached its highest level since June 2001. The strong core inflation rise reflects the broad-based inflationary pressure in the Polish economy. The core inflation rise was also partly connected with the excise duty for alcohol and cigarettes, which was increased in January 2022. Total inflation also rose due to an accelerated price growth in the “energy” category (18.2% YoY in January vs. 14.3% in December). In our opinion, it resulted primarily from the increase in the prices of gas, energy, and liquid and solid fuels, which continued to accelerate. Inflation was also driven up by a stronger price growth in the “food and non-alcoholic beverages” category (9.4% YoY in January vs. 8.6% in December), which was caused primarily by the continuing, strong cost pressure in the food processing sector, which is connected, among others, with the growing prices of agricultural commodities and higher energy and labour costs. A slower price growth in the “fuels” category (23.8% YoY in January vs. 32.9% in December) was driving the inflation down as a result of the impact of the Anti-inflation Shield launched in the second half of December and of the last year’s high base effects. We assess that inflation in January would have reached approx. 10.6% YoY had it not been for the Anti-inflation Shield.

Anti-inflation Shield to reduce inflation temporarily

Inflation rise will be curbed by the Anti-inflation Shield 2.0 in the months to come (see MACROmap of 17/01/2022). Consequently, we forecast that inflation will be running at ca. 7% YoY on average in the period when the Shield is in force (i.e. between February and July 2022). Nonetheless, in August it will rise above 9% YoY again, but then we will see a mild decline in the following months, and it will go below 7% YoY at the end of the year. Consequently, we expect the inflation for 2022 to rise to 7.5% YoY on average vs. 5.1% in 2021, and then fall to 5.5% in 2023. This is consistent with our interest rate scenario for Poland, in which the MPC will increase the rates by 50bp three more times (in March, April and May; see MACROmap of 14/02/2022).

Today’s lower-than-expected data on inflation in January is slightly negative for the PLN and the yields on Polish bonds.