Final data on inflation in line with GUS flash estimate

In accordance with the final GUS data, CPI inflation rose to -0.5% YoY in September vs. -0.8% in August, running in line with the flash GUS estimate and below our forecast equal to the market consensus (-0.4%).

Inflation is increasing due to higher fuel and energy prices

The increase in inflation was mainly due to higher dynamics of fuel prices (-2.5% YoY in September vs. -10.2% in August) and energy prices (-2.3% YoY in September vs. -3.1% in August). Slower price growth in the category "food and non-alcoholic beverages” (0.4% YoY in September vs. 1.2% in August) had an opposite impact. Lower dynamics of food prices resulted mainly from high base effects from the year before, related to the last year's drought, visible especially in case of vegetables' prices (see MACROpulse of 15/10/2015).

In accordance with our estimates, core inflation excluding food and energy prices has not changed in September compared to August and amounted to -0.4%.

Deflation to continue into November 2016

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 September. 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 gradual abatement of decrease in fuel prices in annual terms. Therefore, we forecast that deflation in Poland will continue until November 2016. Consequently, we expect that the average annual inflation will run at a level of -0.6% YoY in 2016 vs. -0.9% in 2015. Major risk to our forecast is the evolution of global oil prices.

Inflation data neural 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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