Inflation in Poland does not want to decrease

In accordance with the final GUS data, CPI inflation rose to 3.2% in September vs. 2.9% YoY in August, running in line with the GUS flash estimate and above the market consensus equal to our forecast (3.0%). The factor behind higher inflation in September were higher dynamics of fuel prices (-9.2% YoY in September vs. -12.3% in August), in the wake of growing global oil prices. Higher inflation resulted also from higher dynamics of energy prices (4.6% YoY in September vs. 4.5% in August) due to the rises in the prices of heat, and higher core inflation, which according to our estimates amounted to 4.2% YoY in September vs. 4.0% in August. The increase in core inflation resulted mainly from higher dynamics of prices in the categories “communication” (i.a. due to rise in prices of telecommunication services), “recreation and culture” (i.a. due to rise in radio and tv subscription fees), “transport – excluding fuels” (due to last year’s low base effect for transport services) and “household equipment and routine household maintenance” (i.a. due to higher prices of furniture and household appliances). In turn, lower dynamics of the prices of food and non-alcoholic beverages (2.8% YoY in September vs. 3.0% in August) had opposite impact on inflation. Lower rate of inflation in this category resulted mainly from lower dynamics of the prices of meat (due to decreasing prices of pork) and fruit (due to better crops this year).

Surprising increase in core inflation in September

Especially noteworthy in the structure of data is the increase recorded in core inflation in September despite the last year’s high base effects. Thus, core inflation has again come closer to its local maximum from July when it stood at the highest level since December 2001. The increase recorded in September in the dynamics of prices in such categories as: “telecommunication services”, “radio and tv subscription fees” or “furniture” and “household appliances” may suggest that higher core inflation results from increased demand for some goods and services due to the prolonging prospects for remote work and further social distancing or a different seasonal pattern of renovation works amid the second wave of the pandemic. In subsequent months we see a high likelihood of further increase in the dynamics of prices of selected goods and services because some companies may transfer higher costs resulting from administrative restrictions imposed due to the second wave of the pandemic to consumers.

COVID-19 price rises pose an upside risk to our inflation scenario

We forecast that by the end of 2020 inflation will have stabilized at ca. 3.0% and in 2021 it will decrease on a yearly average to 1.7% YoY. The forecasted by us decrease in core inflation and food price dynamics will be offset by higher dynamics of the prices of fuels and energy (see MACROmap of 7/9/2020). The increase recorded in core inflation in September poses an upside risk to our forecast. However, we believe that even if there is a further increase in prices resulting from the second wave of the pandemic it will be more than offset by last year’s high base effects and core inflation is going to resume a downward trend in subsequent months. The forecasted by us inflation profile is consistent with our scenario in which the first hike of interest rates (by 15bps) will take place in November 2022 (see MACROmap of 14/9/2020).

The final data on inflation that have been released today are neutral for PLN and yields on Polish bonds.

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