Further symptoms of weakening inflationary pressures

Inflation in line with GUS flash estimate

According to final GUS data, CPI inflation in Poland fell to 10.1% YoY in August vs. 10.8% in July, in line with the GUS flash estimate, and above market consensus (10.0%) and our forecast (9.8%). This means that inflation ran above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for 29 months.

Inflation drop supported by ever slower growth in food prices

A strong slowdown of price growth in the “food and non-alcoholic beverages” category (12.7% YoY in August vs. 15.6% in July) was the main factor driving inflation down. The slowdown was widespread across sectors due to high base effects and globally falling prices of most agricultural commodities, and was seen in all main categories: “milk, cheese and eggs”, “meat”, “bread”, “oils and fats”, “fish and seafood” and “fruit and vegetables”. Particularly noteworthy is a strong slowdown in sugar price growth (4.5% YoY in August vs. 47.9% in July), which resulted from last year’s high base effects connected with panic buying in the Polish sugar market (see MACROpulse of 15/09/2022). Such widespread decline in the prices of food and non-alcoholic beverages is consistent with our forecast saying that price growth in this category will slow down below 10% in Q4 2023. Inflation was also driven down by a slower growth in the prices of energy (13.9% YoY in August vs. 16.8% in July), which primarily resulted from a drop in YoY prices of liquid and solid fuels, mainly due to last year’s high base effects, with the prices of liquid and solid fuels having gone up by 12.1% MoM in August 2022. Lower core inflation, which we estimate to have fallen from 10.6% YoY in July to 10.1% YoY in August had the same effect on inflation. A stronger growth in the prices of fuels (-6.1% YoY in August vs. -15.5% in July) resulting from last year’s low base effects and the global growth in the prices of oil seen over the last couple of months had the opposite impact.

Further symptoms of weakening inflationary pressures

The data breakdown reveals in particular a broad-based core inflation drop, which could be seen in most of its categories: “alcoholic beverages and tobacco”, “clothing and footwear”, “housing (excl. energy)”, “furnishings, household equipment and routine household maintenance”, “health”, “recreation and culture”, “restaurants and hotels” and “miscellaneous goods and services”. We estimate the MoM core inflation to have stood at 0.2%, which is more or less in line with its seasonality pattern. In our opinion, it indicates that inflationary pressures in the Polish economy are weakening. It is consistent with our forecast saying that core inflation in Poland will go down to 7.1% YoY at the end of 2023.

Inflation to fall below 10% in September

Today’s data is consistent with our forecast of inflation falling down below 10% in September, and continuing to fall until it reaches 6.3% YoY in December 2023. We believe that the gradual inflation drop will be supported by a slower growth in the prices of food, non-alcoholic beverages and energy and by lower core inflation. Consequently, we forecast inflation in 2023 to go down from 14.3% YoY in 2022 to 11.6% in 2023, and although last week’s significant depreciation of the PLN carries some risk to our short-term inflation forecast, its impact on inflation in the next couple of quarters will not be significant. We are still of the opinion that rapidly falling inflation in the months to come will cause the MPC to introduce further interest rate cuts. We believe the MPC will cut the interest rates twice more in 2023 (in October and November, each time by 50bp; see MACROmap of 11/09/2023), leaving the NBP reference rate at 5.00%.

In our opinion, today’s final data on inflation is neutral for the PLN and yields on Polish bonds.