Inflation at its highest since February 2020

In accordance with final GUS data, CPI inflation rose to 4.7% YoY in May from 4.3% in April, running below the flash estimate (4.8%), market consensus (4.8%), and our forecast (4.9%). Thus, inflation reached its highest since February 2020 and was above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for the second month in a row.

Wide range of price rises

Inflation was driven up primarily by faster rises in fuel prices (33.1% YoY in May vs. 28.1% in April), which was mainly accounted for by strong last year low base effects. Inflation was also driven up by faster price rises in the ‘food and non-alcoholic beverages' category (1.7% vs.1.2%). The higher pace of price rises in this category was to a large extent accounted for by faster growth in meat prices. This was a result of last year low base effects and rises in poultry prices caused by lower supply due to bird flu. May also saw faster rises in energy prices (4.4% vs. 4.0%) driven by higher rises in gas prices. Headline inflation was also driven up by higher core inflation, which rose to 4.0-4.1% YoY in May from 3.9% in April, according to our estimates.

It should be noted that core inflation was also driven up by such categories as ‘restaurants and hotels’, ‘recreation and culture’, and ‘clothing and footwear’. We believe that faster price rises in these categories were a result of administrative restrictions having being lifted. Firstly, some firms increased the prices of their product to compensate for income lost in previous months, which was possible due to pent-up demand from consumers. Secondly, GUS was able to record prices in these categories only to a limited extent during the time when cinemas, shopping malls, fitness clubs etc. were closed. After such facilities were back in business and the actual prices rather than price estimates were recorded, GUS’s price indices have shown the “true” inflationary picture.

Inflation hit its local high

We believe that inflation hit its local high in May. However, we expect that inflation will continue to run at an elevated level until the end of the year (4.5% YoY on average in H2). On the one hand we expect inflation and the pace of fuel price rises to fall, and on the other hand we forecast faster rises in food prices. In our opinion, inflation will be on a slight downward trend from the beginning of 2022. Taking into account the MPC’s statement after its last meeting and the dovish tone of comments from the NBP President (see MACROmap of 14/06/2021) the inflation outlook outlined above supports our scenario that the MPC will not change interest rates until the end of 2022.

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

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