CPI inflation above the GUS flash estimate

In accordance with the GUS final data, CPI inflation did not change in August compared to July and amounted to 2.9%, running in line with our forecast and above the GUS flash estimate equal to the market consensus (2.8%). Thus, inflation has stayed at the highest level since October 2012.

Lower dynamics of fuel and energy prices hamper increase in inflation

The stabilization of inflation in August resulted from higher dynamics of food prices (7.2% in August vs. 6.8% in July), lower dynamics of fuel prices (-0.4% YoY in August vs. 0.7% in July) and energy (-1.4% YoY in August vs. -1.0% in July), and stable core inflation, which according to our estimates has not changed in August compared to July and amounted to 2.2% YoY.

Further sharp increase in food inflation in August was largely due to higher dynamics of the prices of vegetables (34.8% YoY in August vs. 32.4% in July – the effect of last and this year’s drought) and fruit (7.3% YoY in August vs. 1.5% in July – this year’s poor crops coupled with last year’s low base effect). It is worth noting that the annual dynamics of the prices of vegetables have reached the highest level since at least 2003. The structure of core inflation is also noteworthy. On the one hand, price dynamics decreased i.a. in the categories “other expenditure on goods and services”, “recreation and culture”, “health”, and “furnishings, household equipment and routine household management”. On the other hand, higher growth rate of prices was recorded i.a. in the categories “restaurants and hotels”, “communications”, “alcoholic beverages and tobacco products”, and “clothing and footwear”. Despite the stabilization in August, core inflation has been showing an upward trend from the beginning of 2019, indicating a gradually increasing inflationary pressure in the Polish economy.

Increase of inflation to accelerate in subsequent months

We expect that inflation will be showing an upward trend in subsequent months and will amount to 3.4% YoY in Q1 2020 reaching its local maximum. The main factors conducive to increase in inflation will be the forecasted by us higher core inflation and higher dynamics of food prices (our forecasts of food prices will be discussed in details in the next MACROmap) while lower dynamics of fuel prices will have an opposite impact. At the beginning of 2020 the forecasted by us higher dynamics of energy prices will additionally contribute towards the increase of inflation while the slowing growth rate of food prices will have an opposite impact. Our forecast assuming a gradual decrease of inflation from Q2 2020 is consistent with our scenario, in which interest rates in Poland will remain stable at least until the end of 2020.

Today's inflation reading is neutral for PLN and yields on Polish bonds.

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