Inflation above GUS flash estimate

According to final GUS data, Poland's CPI inflation fell to 17.5% YoY in November vs. 17.9% in October, running slightly above the flash estimate by GUS (17.4%) and below the market consensus (18.0%) and our forecast (17.9%). This means that inflation has been running markedly above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for 20 months.

A drop in the prices of liquid and solid fuels drove inflation down in November

A slower growth in the prices of energy commodities was the main reason behind the unexpected inflation drop in November (36.8% YoY vs. 41.6% in October). It drove headline inflation down by 0.5 pp. between October and November, mainly due to lower prices of liquid and solid fuels (by 1.8% MoM in November). We believe that the sellers were reducing prices to stimulate demand in response to a turnover decline at coal depots in anticipation of the “coal allowance” disbursement. It should be noted that liquid and solid fuels are the inflation basket category that continues to see the strongest, though slower, growth in prices (109.1% YoY in November vs. 147.0% in October). Inflation was also being driven down by a slower growth in the prices of fuels (15.5% vs. 19.5%), fostered by last year’s high base effects and a drop in the prices of oil in global markets expressed in the PLN.

Inflation pressure still strong

However, the headline inflation was driven up by higher core inflation, which rose from 11.1% in October to 11.4% in November in line with our estimations, thus reaching the highest level since January 1999. Core inflation rose primarily due to a stronger price growth in the "communication” category (5.0% YoY vs. 3.3% in October) resulting from the increase in the prices of "telephone and telefax services”. However, core inflation was also driven up by stronger price growth in other categories: “alcoholic beverages and tobacco", “furnishings, household equipment and routine household maintenance”, “miscellaneous goods and services”, “health”, “restaurants and hotels” and "education". In our opinion, further acceleration in core inflation and the fact that it is accounted for by a wide range of categories suggest that inflation pressure in the Polish economy remains strong. It is worth noting that headline inflation is currently being driven up by a strong growth in the prices of goods (18.8% YoY in November), though the prices of services also saw a double-digit growth over the last couple of months (13.2% YoY in November).

Inflation was also driven up by a slightly stronger growth in prices in the “food and non-alcoholic beverages” category (22.3% YoY in November vs. 22.0% in October). A stronger growth in the prices of foods in November was seen in such categories as “milk, cheese and eggs” (28.8% YoY vs. 27.4% in October), “fruit” (16.3% vs. 14.7%) and “non-alcoholic beverages” (15.4%). A slight growth in the prices of foods between October and November supports our scenario, in which the growth in the prices of food and non-alcoholic beverages will reach its local peak in Q4 2022, and then it will start slowing down in the quarters to come. For more information about the outlook for the prices of food, please see today’s AGRImap.

Inflation rise in Poland is not over yet

Headline inflation in November fell for the first time since June 2021 (except for the February 2022 drop that resulted directly from the adoption of the Anti-inflationary Shield). We do not think the inflation rise in Poland is over yet. The termination of the Anti-inflationary Shield combined with the adoption of a new mechanism to curb the energy prices in early 2023 will drive inflation up. We expect the headline inflation to reach its local peak at slightly below 20% YoY in February 2023, and then it will go down to reach about 6% at the end of 2023. We expect the average annual CPI inflation to stand at 12.1% in 2023. However, our forecast is subject to a significant risk as it is difficult to assess a combined impact of the termination of the Anti-inflationary Shield and the adoption of a new mechanism to curb the energy prices in early 2023 (see MACROmaps of 05/12/2022 and 12/12/2022).

We believe that today’s inflation data is neutral for the PLN and yields on Polish bonds.

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