Final inflation data exceeds flash estimate
According to the final data from the GUS, CPI inflation remained unchanged in November compared to October, standing at 6.6% YoY, exceeding the flash estimate of 6.5%. Despite the recent drop in inflation, it has remained above the upper band for deviations from the NBP's inflation target (3.5% YoY) for 32 consecutive months.
Lower core inflation is the main driver supporting the decline in inflation
The main factor conducive to the decrease in inflation was the drop in core inflation. Our estimates show a decrease to 7.3% YoY in November, down from 8.0% in October, marking the lowest level since March 2022. The decline was observed across various categories, including "alcoholic beverages and tobacco", "furnishings, household equipment and routine household maintenance", "communication", "recreation and culture", "education", "restaurants and hotels", and "miscellaneous goods and services". We estimate that the monthly core inflation rate in November was around -0.1%, slightly below the typical seasonal pattern for the month (approximately 0.0%), suggesting a gradual easing of inflationary pressures.
High base effects contribute to inflation decline
The overall decline in inflation was also influenced by a slower price increase in the "food and non-alcoholic beverages" category, which registered at 7.3% YoY in November, down from 8.0% in October. It is important to note that this decrease is primarily due to high base effects from the previous year, while the monthly price growth for food and non-alcoholic beverages exceeded the seasonal pattern. This was largely driven by the rise in fruit and vegetable prices, which can be attributed to this year's poor harvests. Another negative factor for inflation was the slower pace of energy price increases (7.9% YoY compared to 8.3%), largely due to high base effects from last year. Conversely, an increase in fuel price growth (-5.7% YoY vs. -14.4%) contributed to rising inflation, which can be largely attributed to the diminishing effects of previous price anomalies in the domestic fuel market observed in September and October.
Policy decisions by the new government will be crucial for the inflation outlook
We believe that inflation will continue to decline in the next two quarters, reaching a local minimum of 4.6% in Q2 2024. However, there is a significant downside risk to this forecast, associated with the high likelihood of maintaining a zero VAT rate on basic food products in the first half of next year and the recently passed law by the Sejm freezing prices of electricity, gas, and district heating until mid-2024. If this risk materializes, it could increase the likelihood of an interest rate cut occurring earlier. We are currently anticipating a 25bp cut in November.
In our opinion, today's final inflation data has a neutral impact on the PLN exchange rate and yields on Polish bonds.