Inflation again within the tolerance band

In accordance with the GUS data, CPI inflation dropped to 3.4% YoY in April vs. 4.6% in March, running in line with the GUS flash estimate, our forecast, and market expectations. Thus, inflation has returned below the upper limit of band for deviations from the NBP inflation target.

Wide ranging decrease of prices in the economy

The main factor behind the decrease of inflation in April were significantly lower dynamics of fuel prices (-18.8% YoY in April vs. -2.9% in March), due to the collapse of global oil prices. It is worth noting that in monthly terms fuel prices decreased by 12.9%, recording the sharpest monthly decline since at least January 1999. The decrease in inflation resulted also from lower dynamics of the prices of food and non-alcoholic beverages (7.4% YoY in April vs. 8.0% in March). The slower growth of prices in this category resulted from lower dynamics of the prices of meat due to high base effects from the year before (in April 2019 meat prices rose by 3.4% MoM due to a sharp increase in the prices of pork). Core inflation also recorded a decrease and according to our estimates dropped to 3.5% YoY in April vs. 3.6% in March. The decrease in core inflation resulted from lower price dynamics in the category “clothing and footwear” (-3.4% YoY in April vs. -1.7% in March) which in our view was caused by considerable price reductions in online stores when direct sales were impossible. The decrease in core inflation also resulted from lower price dynamics in the category “other expenditure on goods and services” (1.5% YoY in April vs. 2.6% in March). A sharp monthly decrease of prices in this category was recorded in case of insurances, which, in our view, resulted from weaker demand from consumers amid the pandemic.

Increasing problems of GUS with measuring inflation

According to GUS statement, the administrative restrictions related to the combat against the spread of the COVID-19 pandemic in April have affected the calculation of the rate of inflation to a much bigger extent than in March. In addition to changing the method of monitoring prices to remote, GUS had to estimate price dynamics in branches which were not functioning due to the administrative restrictions (see MACROpulse of 15/4/2020). According to the statement, GUS has estimated more than 50% of prices in the categories “education” and “restaurants and hotels”, nearly 50% in the category “recreation and culture”, and more than 25% in the categories “health” and “clothing and footwear”. Thus, services prevail among the categories with the biggest percentage of estimated prices.

Inflation will decrease in subsequent months

We expect that subsequent months will bring further decrease in inflation. It will result from lower dynamics of prices of fuels, food and from lower core inflation. However, it is worth noting that the expected by us decrease of core inflation in the coming months will mainly result from the last year’s high base effects, while the prices of services will remain at a level from before the outbreak of the pandemic, we believe. Consequently, we forecast that inflation will decrease to 2.6% YoY in Q2 vs. 4.5% in Q1 and in the whole 2020 it will increase to 3.1% YoY vs. 2.3% in 2019.

Significant deceleration of GDP growth in Q1

In accordance with GUS data published today, the economic growth rate dropped to 1.9% YoY in Q1 vs. 3.2% YoY in Q4 2019, thus running slightly above the market consensus (1.7%) and visibly above our forecast (0.1%). Seasonally adjusted quarterly GDP dynamics decreased to -0.5% in Q1 vs. 0.2% in Q4 2019. The data published by GUS are a flash estimate and full data on GDP including information about its structure will be released towards the end of the month. We believe that the main reason for the lower than we expected deceleration of economic growth was a smaller than we assumed decrease in consumption dynamics.

Despite the higher-than-we-expected data on GDP in Q1, we maintain our forecast of economic growth in 2020 (-3.8%), due to the forecast of corporate investments which we have adjusted downwards. We believe that due to increased uncertainty about the spread of COVID-19 pandemic, corporate investments will decrease more than we had expected. In the next MACROmap we will present a detailed structure of GDP in 2020.

Today’s slightly-higher-than-expected data on the Polish GDP are neutral for PLN and bond yields.

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