Final inflation in line with flash estimate

In accordance with the final GUS data, CPI inflation dropped to 3.0% in November vs. 3.1% YoY in October, running in line with the GUS flash estimate and slightly below our forecast (3.1%). The main factor behind lower inflation in November were lower dynamics of the prices of food and non-alcoholic beverages (2.0% YoY in November vs. 2.4% in October). Lower price growth rate in this category resulted i.a. from lower dynamics of meat prices, due to last year’s strong low base effects and the recently observed fall of prices of pigs and poultry amid their continuing oversupply in the EU market given the pandemic. Conducive to a decrease in headline inflation were also lower dynamics of energy prices (4.7% YoY in November vs. 4.8% in October) resulting from lower dynamics of gas and heat prices. The rate of fuel prices decrease has not changed in November compared to October and amounted to -9.2% YoY.

Another (temporary) increase in core inflation

As we expected, November recorded an increase in core inflation to the estimated by us level of 4.3% YoY vs. 4.2% in October. Responsible for higher core inflation were mainly higher dynamics of the prices of services (7.8% YoY vs. 7.3% in October) which stood at the highest level since January 2001. The price dynamics increased the most in the categories: “restaurants and hotels”, “telecommunication services”, “rubbish disposal”, “transport services”, “other goods and services”. Such price rise structure partly reflects the pro-inflationary impact of the COVID pandemic – increased demand for some services due to prolonging prospects for remote work and further social isolation (“telecommunication services”) and price rises making up for lower turnovers (catering and hospitality sector).

Inflation will decline next month

We expect headline inflation to significantly decrease in December 2020 due to high base effects (mainly for core inflation). In the horizon of several quarters core inflation will stay at a level close to the MPC target (2.5%), supported by low wage pressure and low inflation in the Eurozone. The factors which will limit the decrease in headline inflation will be the rise in electricity prices and the implementation of so-called sugar tax at the beginning of 2021. We forecast that headline inflation will, on a yearly average, amount to 3.4% in 2020 and will decrease to 2.6% in 2021. Our inflation forecast is subject to uncertainty due to considerable changes anticipated to be introduced at the beginning of 2021 in the weighing systems used by GUS to reflect the distortions in the households’ inflation basket caused by the COVID-19 pandemic.

Today’s data on inflation are neutral for PLN and yields on Polish bonds, we believe.

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