Final data on inflation in line with GUS flash estimate

In accordance with the final GUS data, CPI inflation rose to -0.2% YoY in October vs. -0.5% in September, running in line with the flash GUS estimate and above our forecast equal to the market consensus (-0.3%).

Positive annual dynamics of fuel prices for the first time since May 2014

The increase in inflation (by 0.2 pp.) was mainly due to higher dynamics of fuel prices (1.8% YoY in October vs. -2.5% in September). Moreover, fuel prices have increased on annual terms for the first time since May 2014. Conducive to higher inflation (by 0.1 pp.) was also higher core inflation excluding food and energy prices. According to our estimates, it amounted to -0.2% YoY in October vs. -0.4% in September. Higher core inflation was resulting i.a. from higher price dynamics in category "Miscellaneous goods and services” (2.4% YoY in October vs. 1.8% in September). According to GUS it was partly connected with a rise in insurances fees.

Deflation will end in December

In our view, the downward trend in global food prices has permanently reversed at the beginning of 2016. This view is supported by the continued increase in FAO food price index in October. In effect, we forecast that the dynamics of food prices will gradually increase until the end of H1 2017. In addition, conducive to higher inflation will also be the continuation of increase in fuel prices on annual terms. Major risk to our forecast is the evolution of global oil prices. In last few days bond yields on core markets, including in particular yields on US bonds, were growing. This reaction can be interpreted as an increase – in the opinion of the investors – in the likelihood of monetary policy tightening by FED in medium perspective. This view is justified in the light of the latest remarks of D. Trump, who after the release of the election results emphasized the need of a sharp increase in public investments (see MACROmap of 14/11/2016). Strong fiscal expansion in the USA would be conducive to higher demand on oil. Its prices have been recently relatively stable. Consequently the probability of oil prices growth in next months has increased as expectations of expansive fiscal policy in the USA intensified.

We forecast that deflation in Poland will continue until November 2016 and in December inflation will turn positive. Consequently, we expect that the average annual inflation will run at a level of -0.6% YoY in 2016 vs. -0.9% in 2015.

Inflation data neutral for PLN and bonds yields

Today's data on inflation, consistent with the GUS flash estimate, are neutral for PLN and yields on Polish bonds, we believe.

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