In accordance with the GUS data, CPI inflation in January dropped to 1.9% YoY vs. 2.1% in December 2017, running in line with our forecast equal to the market consensus. The data on the January inflation are incomplete and preliminary due to the annual review of weights in the inflation basket. At the same time, the structure of inflation in January, published this year, includes fewer categories that a year ago, which additionally limits the possibility of drawing conclusions based on these data. Full data on the rise in prices in the respective categories in January and February 2018, including a revised inflation indicator in January, will be released in March.

Slower growth of food prices has lowered inflation

We estimate that the main factor behind the decrease in inflation (by ca. 0.1 pp) was slower growth of prices of food and non-alcoholic beverages (ca. 4.9% YoY in January vs. 5.4% in December). We believe that the decrease in the annual growth rate of food prices was wide ranging and was recorded i.a. in the categories "oils and fats”, "meat”, "milk, cheese, eggs”, "fruit”, "vegetables” and "sugar”. The decrease in inflation most likely resulted also from lower dynamics of energy prices, due to high base effects from the year before (see MACROpulse of 13/2/2017). We estimate that in January the annual dynamics of fuel prices stayed at a similar level as in December. On the other hand, we believe that conducive to increase in inflation was core inflation, which, according to our estimates, amounted to 1.0% YoY in January vs. 0.9% in December.

Price growth will become increasingly slower

In subsequent months we expect a further decrease in the dynamics of food and fuel prices with a moderate increase in core inflation. This view is supported by a sharp fall observed in recent weeks for global oil prices. From 25 January 2018 the price of Brent oil has decreased by ca. 13% to slightly below USD 62 per barrel, returning to a level from November 2017. Consequently, we forecast that inflation will fall to 1.7% in 2018 vs. 2.0% in 2017 (see MACROmap of 11/12/2017). This supports our scenario in which the MPC will leave interest rates at an unchanged level until the middle of 2019.

Today's data on the January inflation are neutral for PLN and yields on Polish bonds.

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