Inflation temporarily in line with the target

Inflation well below expectations

According to GUS data, CPI inflation fell to 2.8% YoY in February from 3.7% in January (downward revision from 3.9%), running below market consensus (3.2%) and our forecast (3.1%). For the first time since March 2021, inflation fell, though temporarily only, below the upper band for deviations from the NBP’s inflation target (3.5% YoY).

Fall in inflation supported by high base effects

According to the data released by GUS, the fall in inflation in February was mainly driven by slower price growth in the 'food and non-alcoholic beverages' category (2.7% YoY in February vs. 4.9% in January). The slower pace of food and non-alcoholic beverages price rises was recorded in most of the main sub-categories and was accounted for by last year high base effects as well as a marked fall in the prices of agricultural commodities in recent quarters. Lower inflation is also a result of lower core inflation, which according to our estimates stood at 5.3% YoY in February vs. 6.2% in January. The fall in core inflation was broad-based across the majority of categories: ‘alcoholic beverages and tobacco’, ‘clothing and footwear’, 'housing (excluding energy)’, ‘furnishings, household equipment and routine household maintenance’, ‘communication’, ‘recreation and culture’, ‘education’, ‘restaurants and hotels’, and ‘miscellaneous goods and services’. We estimate that MoM core inflation did not change between January and February, standing at 0.5%, and running above the seasonal pattern (ca. 0.1% in February). We believe this is a sign of continuing elevated inflationary pressures in the Polish economy. We expect MoM core inflation to fall in the coming months, however, we expect it remain above the seasonal pattern. Inflation was driven up by a slower decline in fuel prices (-6.4% YoY in February vs. -8.3% in January), driven by a rise in oil prices in January. Energy prices continued to decline at an almost flat rate: -3.0% in February compared with 3.1% in January.

High inflation affects the breakdown of household spending

GUS also published revised weights in the consumer basket, which reflect the breakdown of household spending in 2023. Particularly worth noting is an increase in the share of spending accounted for by items whose prices soared the most in 2023, namely 'food and non-alcoholic beverages' (27.63% in 2023 vs. 27.01% in 2022) and ‘housing and energy’ (20.43% vs. 19.63%). The data shows that due to the fact that these are basic goods, households tried to keep their consumption unchanged at the expense of spending on other categories, including, among others ‘alcoholic beverages and tobacco’ (5.66% in 2023 vs. 5.75% 2022), ‘clothing and footwear’ (3.92% vs. 4.27%), and ‘furnishings, household equipment and routine household maintenance’ (4.95% vs. 5.29%). The breakdown of spending shows a gradual recovery in demand in ‘recreation and culture’ and, ‘restaurants and hotels’. However, it is worth noting that the shares accounted for by these categories have not returned to pre-pandemic levels yet. The share of the ‘health’ category decreased, too (5.36% vs. 5.71%), which can be associated with the fading of pandemic effects on spending in this category.

We will present our new inflation scenario in our MACROmap on Monday

Due to a lower starting point for our inflation forecast and this week's decision of the government to restore 5% VAT on basic food products beginning on 1 April, we need to revise our inflation scenario. The revised scenario will be presented in the MACROmap on Monday.

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