Food prices rising at slowest pace since October 2016

According to GUS data, CPI inflation dropped to 2.4% YoY in February from 2.6% in January (downward revision from 2.7%), running below market expectations (2.6%) and our forecast (2.5%). Inflation was driven down by lower rates of growth of energy prices (4.1% YoY in February vs. 6.1% in January – lower pace of growth of electricity prices). A lower rate of growth of prices of food and non-alcoholic beverages (0.6% YoY in February vs. 0.8% in January), at the lowest level since October 2016, was another factor driving inflation down. The marked decline in the rate of growth of prices in this category was driven primarily by a slower pace of fruit, vegetables, and bread prices rises (mainly due to last year high base effects). Lower inflation is also a result of lower core inflation which in accordance with our estimates stood at 3.6% YoY in February vs. 3.8% in January. Core inflation was driven down chiefly by lower price increases in the following categories: ‘alcoholic beverages and tobacco’ (due to last year high base effects), ‘communication’ (lower pace of growth of telecommunication services prices), ‘restaurants and hotels’ and ‘housing’, without energy prices (last year high base effects). An opposite impact on inflation came from a higher rate of growth of fuel prices, which rose to -3.7% YoY in February from -7.4% in January, which is connected with a continuing rise in oil prices in the global market.

The pandemic changed the breakdown of Polish consumers’ spending

GUS also published revised weights in the CPI inflation basket, which reflect the breakdown of household spending in 2020. The data is particularly interesting as it shows the impact of the pandemic on the breakdown of consumer spending. What is particularly worth noting is an increase in the share of food spending (27.77% in 2020 vs. 25.24% in 2019). The chief reason behind the higher food spending is that because of remote working and schooling, as well as administrative restrictions imposed on restaurants, part of consumers prepare meals on their own. This assessment is supported by a strong decline in the ‘restaurants and hotels’ category in the breakdown of household spending (4.56% in 2020 vs. 6.12% in 2019). However, it should be pointed out that this category also reflects effects of lower mobility of Poles and restrictions imposed on travel services. Administrative restrictions were also reflected in the smaller share of the ‘recreation and culture’ category in total spending (5.78% in 2020 vs. 6.62% in 2019). Lower mobility of people and the decline in fuel prices are also reflected in a decline in the ‘transport’ category in the breakdown of spending (8.88% in 2020 vs. 9.89% in 2019). What is also worth noting is an increase in the share of ‘communication’ category, including telecommunication equipment and services, in total spending (5.00% in 2020 vs. 4.54%), which to a large extent resulted from the need for some households to adapt to online working and schooling.

Inflation will soon be under rising fuel price pressure

We expect a slight increase in inflation in the coming months. The increase will result from strong rises in fuel prices as well as higher growth rate of prices of food and non-alcoholic beverages (mainly meat, vegetables, and bread prices), which will more than offset the drop in core inflation, resulting from last year high base effects (see MACROmap of 18/01/2021). In consequence, we can see an upward risk to our forecast that headline inflation will drop in 2021 to 2.6% from 3.4% in 2020.

Today’s data on inflation is slightly negative for the PLN and yields on bonds.

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