Final data on inflation in line with the GUS flash estimate

According to final GUS data, Poland's CPI inflation rose to 6.8% YoY in October vs. 5.9% YoY in September, in line with the flash estimate by GUS and markedly above the market consensus (6.4%) and our forecast (6.5%). Thus, inflation reached its highest since May 2001, and was above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for seven consecutive months.

Inflation rising in all major categories

Inflation was driven up by a stronger price growth in the “food and non-alcoholic beverages” category (5.0% YoY in October vs. 4.4% YoY in September). As regards the food, the increase in prices was stronger in many sub-categories, including “oils and fats”, “bread and cereal products” and “milk, cheese and eggs” as a result of a tense demand-supply situation in the global grains, oilseeds, and milk markets, and also in the “fruit” sub-category, as a result of a poorer quality of the harvested fruit this year, and the last year’s low base effect. Inflation was also driven up by a stronger growth in energy prices (10.5% YoY in October vs. 7.3% YoY in September), which resulted primarily from the higher prices of gas and liquid and solid fuels. Furthermore, inflation was also driven up by a stronger growth in the prices of fuels (33.9% YoY in October vs. 28.6% YoY in September) due to globally growing oil and gas prices. The growth was particularly strong in the “liquid petroleum gas and other fuels for personal transport equipment” category (53.1% YoY in October vs. 37.7% YoY in September). Higher core inflation, which we estimate to have risen from 4.2% YoY in September to 4.6% YoY in October was also driving inflation up. We estimate it to have reached the highest level since October 2001. Core inflation rose due to an increase in prices in many categories, including “furnishings, household equipment and routine household maintenance” (due to higher prices of furniture, furnishings, domestic services and household services, cleaning and maintenance products, and household appliances), “communication” (due to a stronger growth in the prices of telephone and telefax services), ”restaurants and hotels”, “recreation and culture” (caused by an increase in the prices of books, newspapers and periodicals, and audio-visual, photographic and information processing equipment), “health” (among others, due to an increase in the prices of dental services and therapeutic appliances and equipment), “clothing and footwear” (due to a growth in the prices of clothing), and “transport, excluding fuels” (the effect of higher prices of motor cars and transport services).

Core inflation keeps growing

It is worth noting that core inflation is growing faster despite strong high base effects associated with the wave of COVID increases in the first phase of the pandemic. Like in the preceding months, the structure of the core inflation data indicates that this is partly due to the realisation of pent-up demand in sectors of the economy that were frozen in the previous months, which is pro-inflationary in a supply-constrained environment (see MACROpulse of 15/10/2021). This opinion is supported by continuous inflation rise in the “restaurants and hotels” category. However, it can be expected that this effect will start to recede gradually in the months to come. Another reason behind the core inflation growth is the supply barrier effect, which drives the prices up in such categories as “household appliances”, “furniture and furnishings”, “audio-visual, photographic and information processing equipment”, “therapeutic appliances and equipment” or “motor cars” due to lower supplies of certain goods.

Inflation will keep on rising

Prices in the coming months will be driven up by a stronger growth in the “food and non-alcoholic beverages”, “energy” and “fuels” categories as well as by higher core inflation. We will present our revised scenario for inflation in the next MACROmap.

In our opinion, today’s data on inflation is neutral for the PLN and the yields on Polish bonds.

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