Final data on inflation in line with the GUS flash estimate

According to final GUS data, Poland's CPI inflation rose to 8.6% YoY in December vs. 7.8% in November, running in line with the flash estimate by GUS and above the market consensus, which was consistent with our forecast (8.3%). Thus, inflation reached its highest level since November 2000, and was above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for nine consecutive months.

Strongest growth in the food prices since 2011

Inflation was mainly driven up by a stronger growth in prices in the “food and non-alcoholic beverages” category (8.6% YoY in December vs. 6.4% in November), which caused the inflation to rise by 0.6 pp. At the same time, it has been the strongest growth in the prices of food and non-alcoholic beverages since May 2011. The growth in the dynamics of the food prices could be seen across many categories, including “meat”, “vegetables”, “fruit”, “milk, cheese and eggs”, “oils and fats”, “bread and cereal products” or "fish and seafood”. In our opinion, such a broad range of product categories affected by the increase in food prices combined with a large scale of the increase shows that the increase is not merely an outcome of higher prices of agricultural commodities but also stems from the growing costs in the food processing industry (including the costs of energy, labour or packaging). Inflation was also driven up by a stronger growth in the prices of energy (14.3% YoY in December vs. 13.4% in November), resulting from an increase in the prices of gas, liquid and solid fuels and heat energy. It is also worth noting that the prices of liquid and solid fuels increased by 39.8% YoY in December comparing to a 37.4% growth in November, and consequently, it remains one of those product categories where the increase in prices is the strongest. Inflation was also driven up by higher core inflation, which rose from 4.7% YoY in November to 5.2% in December, reaching the highest level since August 2001. In turn, a slower growth in the prices of fuels (32.9% YoY in December vs. 36.6% in November) had the opposite impact, which resulted from the gradual fading of low base effects and a drop in the prices of fuels in the second half of December due to the launching of the anti-inflation shield programme.

Core inflation data are a cause for concern

Core inflation growth in December could be seen in many product categories including “communication”, “clothing and footwear”, “miscellaneous goods and services”, “restaurants and hotels”, “recreation and culture”, “health”, “furnishings, household equipment and routine household maintenance” or “alcoholic beverages and tobacco”, which is indicative of a strong inflation pressure in the Polish economy. Particularly noteworthy is the “clothing and footwear” category (2.9% YoY in December vs. 1.9% in November), where the price growth rate was the highest since January 2001. To some extent, it was the low base effect dating to December 2020 connected with the impact of closed shopping malls on prices that contributed to the increase in the price growth rate in this category. It is also worth noting that the dynamics of prices in this category was negative for years, which was connected with it being strongly dependant on imports from countries where production costs were low. The growth in prices in this category, which has continued over the last couple of months, reflects the most important cost-related problems suffered by the Polish companies that rely on imports: supply barriers, growing transportation costs, and PLN depreciation against both EUR and USD. “Telephone and telefax equipment” was the only GUS category to see a year-on-year drop in prices in December (-2.9% YoY in December vs. -4.0% in November). The analysis of monthly growth in prices in this category shows that the prices here will also start growing on a year-on-year basis in the months to come.

Anti-inflation shield to reduce inflation temporarily

Anti-inflation shield 2.0. adopted by the government will be a key factor from the point of view of the inflation path in the months to come as it will temporarily reduce the inflation. Our detailed inflation scenario taking into consideration the impact of the anti-inflation shield will be presented 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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