Return to single-digit inflation

According to final GUS data, CPI inflation in Poland decreased to 8.2% YoY in September, down from 10.1% in August, aligning with the GUS flash estimate. Thus, inflation has remained above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for 30 consecutive months. A substantial decline in core inflation was the primary driver behind this reduction, dropping from 10.0% YoY in August to 8.5%. This decline was widespread, marked across all major core inflation categories: "alcoholic beverages and tobacco products", "clothing and footwear", “housing” (excluding energy), “furnishings, household equipment and routine household maintenance”, "health”, “transport” (excluding fuel for private means of transport), “communication”, “recreation and culture”, “restaurants and hotels” and “miscellaneous goods and services”. We estimate that prices of goods and services within core inflation remained stable month-on-month, indicating that monthly core inflation in September was relatively consistent with its seasonal pattern. This signals a gradual easing of inflationary pressures in the Polish economy.

Last year's high base continues to support disinflation

The decline in the annual inflation rate also resulted from a slowdown in price growth in the "food and non-alcoholic beverages" category (10.4% YoY vs. 12.7% in August), driven by high base effects and decreasing global prices of agricultural commodities. A reduction in energy price growth also contributed to lower inflation (9.9% YoY in September vs. 13.9% in August), attributable to last year’s high base effects and GUS’ inclusion of the retroactive reduction in electricity prices as part of the allowance for households. A steeper fall in fuel prices (-7.0% YoY in September vs. -6.1% in August), associated with a relatively strong drop in their prices recorded in September (-3.1% MoM vs. -2.1% in September 2022), also played a role in tempering annual price growth rates.

Inflation expected to maintain downward trend

Today's data is consistent with our projection of a sustained downward inflation trend until Q2 2024. It is anticipated to taper to 6.6% YoY by December 2023, with a local minimum of 3.2% expected in April 2024. The gradual decrease in inflation will be broad-based, supported by further reduction in core inflation and slower growth rates in food, non-alcoholic beverage, and energy prices. Conversely, an anticipated gradual rise in the annual growth rate of fuel prices starting this October, following from trends in crude oil prices, the USDPLN exchange rate, and the normalization of domestic fuel prices post-parliamentary elections, will exert upward pressure. We expect that continued disinflation will prompt the MPC to reduce interest rates by 25bps in both November and December, followed by a temporary pause in the monetary easing cycle in January and February, anticipated to resume in March. We anticipate a cumulative 75bps cut in interest rates through March to May. Consequently, the NBP reference rate will reach 4.50% and stabilize at this level until the end of 2024. It is crucial to note that the outcome of the upcoming parliamentary elections in Poland poses a significant risk to our interest rate projections.

In our opinion, the final inflation data will be neutral for the PLN exchange rate and yields on Polish bonds.