Final inflation data above the GUS flash estimate

According to final GUS data, Poland's CPI inflation rose to 7.8% YoY in November vs. 6.8% in October, running above the flash estimate by GUS and clearly above the market consensus (7.4%) and our forecast (7.3%). Thus, inflation reached its highest since December 2000, and was above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for eight consecutive months.

Strong inflation rise continues across all main categories

Inflation was driven up by a stronger price growth in the “food and non-alcoholic beverages” category (6.4% YoY in November vs. 5.0% YoY in October). As regards the food, the increase in prices was stronger in many sub-categories, including “fruit” (as a result of a poorer quality of the harvested fruit this year, and the last year’s low base effect), “oils and fats”, “bread and cereal products”, “milk, cheese and eggs” (as a result of a tense demand-supply situation in the global grains, oilseeds, and milk markets), and “meat” (mainly due to the growing prices of poultry meat). Inflation was also driven up by a stronger growth in energy prices (13.6% YoY in November vs. 10.5% YoY in October), which resulted primarily from the higher prices of gas and liquid and solid fuels. It is worth noting that the prices of liquid and solid fuels went up by 37.4% YoY in November, comparing to an 18.3% growth in October, and consequently “liquid and solid fuels” was one of those product categories, where the price growth was the strongest. Furthermore, inflation was also driven up by a stronger growth in the prices of fuels (36.6% YoY in November vs. 33.9% YoY in October) due to globally growing oil and gas prices. Although the prices were growing significantly across all fuel price categories, the strongest growth was seen in the “liquid gas and other liquid petroleum gas and other fuels for personal transport equipment” sub-category (53.2% YoY in November vs. 53.1% in October). Higher core inflation, which we estimate to have risen from 4.5% YoY in October to 4.7% YoY in November was also driving the inflation up. We estimate it to have reached the highest level since October 2001. Inflation rose due to an increase in prices in many categories, including “recreation and culture” (among other things, due to an increase in the prices of package holidays in Poland and abroad), “clothing and footwear” (due to a stronger growth in the prices of both clothing and footwear) and “transport, excluding fuels” (among other things, due to an increase in the prices of motor cars). However, core inflation was also driven down by a slower growth in prices in such categories as “communication” (last year’s high base effect, and a decline in the prices of telephone and telefax services month on month).

Upward trend for core inflation continues

It is worth noting that core inflation is growing faster despite strong high base effects associated with the wave of COVID-related increases in 2020. 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 15/11/2021). This opinion is supported by continuous inflation rise in such categories as “restaurants and hotels” or “package holidays”. However, it is worth noting that even though the pent-up demand effect is fading, the quickly growing wage fund remains the source of demand pressure in those categories. Another reason behind the core inflation growth is the supply barrier effect, which drives the prices up in such categories as “household appliances”, “audio-visual, photographic and information processing equipment” or “motor cars” due to lower supplies of certain goods.

Inflation to reach its peak in Q4 2021

Taking into consideration the actions that the government intends to take as part of the so-called Anti-inflationary Shield (see MACROmap of 12/06/2021), we believe that inflation will reach its local peak in Q4 2021. However, in H1 2022, it will continue to run at ca. 7% YoY. We expect inflation to start falling more markedly only in H2 2022, which will be influenced by lower core inflation and a lower dynamics of the prices of foods, fuels and, towards the end of 2022, also energy. However, it is worth noting that inflation will stay above the upper band for deviations from the NBP’s inflation target (3.5% YoY) over our forecast horizon. This inflation path is consistent with our interest rate scenario, which assumes one last 50-bp interest rate hike as part of this monetary policy tightening cycle in January 2022 (see MACROpulse of 08/12/2021).

In our opinion, today’s data on inflation are slightly positive for the PLN and the yields on Polish bonds.

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