Inflation well below expectations

In accordance with the GUS data, CPI inflation increased from 16.6% YoY in January (downward revision from 17.2%) to 18.4% YoY in February, running below the market consensus (18.7%) and our forecast (18.8%). This means that inflation was running above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for 23 months.

Last year’s Anti-Inflation Shield boosted this year’s inflation

A stronger growth in the prices of food and non-alcoholic beverages (24.0% YoY in February vs. 20.6% in January) was the main reason behind the inflation rise in February. It was largely due to the last year’s low base effect arising from a lower VAT for foods (see MACROpulse of 15/03/2022). Nonetheless, as regards the food price growth structure, a significant acceleration seen in the case of the prices of vegetables (22.3% YoY in February vs. 14.3% in January) seems to be particularly noteworthy. It resulted mainly from a strong growth in the prices of vegetables that are imported at this time of the year primarily from the countries of Southern Europe and North Africa, where crops were affected by cold weather. Furthermore, significantly higher costs of production (increasing prices of fertilisers, crop plant protection chemicals, and energy) and transportation (higher prices of fuels) of those vegetables have also driven their prices up. A stronger growth in the prices of pork (33.5% YoY in February vs. 26.1% in January) resulting from a stronger demand for pork amid a strong decline in the production of pigs in the EU (see AGROmapa of 10/03/2023) was another important factor driving the prices up in the “food and non-alcoholic beverages” category.

Core inflation keeps rising

Inflation in February was also driven up by a stronger growth in the prices of “fuels” (30.8% vs. 18.8%) and “energy” (31.1% vs. 29.7%), which was also largely attributable to the last year’s low base effects resulting from the Anti-Inflation Shield (see MACROpulse of 15/03/2022). Inflation was also driven up by higher core inflation which, in accordance with our estimates, rose to 11.9% YoY in February comparing to 11.7% in January. Core inflation rise resulted from an accelerated growth in prices in such categories as “communication” (due to higher prices of telephone and telefax services), “alcoholic beverages and tobacco” (higher prices of both alcoholic beverages and tobacco), “miscellaneous goods and services” (mainly due to a stronger growth in the prices of personal hygiene and beauty products) and “housing (excl. energy)” (due to a stronger growth in the prices of water supply and waste disposal). In our opinion, core inflation data are indicative of the continuing presence of broad inflation pressure in Polish economy.

High inflation affects the structure of households’ expenses

The GUS has also published revised weights for the consumer basket, which reflect the structure of households’ expenses in 2022. Particularly noteworthy is an increase in the share of expenses on the categories that were particularly affected by price growth, such as “foods and non-alcoholic beverages” (27.01% in 2022 vs. 26.59% in 2021), “housing and energy” (19.63% vs. 19.33%) and “transportation” (9.92% vs. 9.54%). The data suggest that the households were trying to keep the level of consumption of those basic goods unchanged, giving them priority over other categories such as “alcoholic beverages and tobacco” (5.75% in 2022 vs. 6.32% in 2021), “clothing and footwear” (4.27% vs. 4.47%) or “furnishings, household equipment and routine household maintenance” (5.29% vs. 5.71%). What is also worth noting about the data is the fading impact of the COVID-19 pandemic. It is showing through the increase in the share of such categories as “recreation and culture” (6.14% in 2022 vs. 6.07% in 2021) and “restaurants and hotels” (5.11% vs. 4.77%) in the consumer basket. However, it is worth noting that the shares of the categories mentioned above have not come back to pre-pandemic levels yet despite the growth observed for the last two years. The share of such categories as “health” (5.71% in 2022 vs. 5.69% in 2021) or “education” (1.21% vs. 1.16%) has also increased, which can be explained by the increasing wealth of the Polish society.

Inflation in January turned out to be significantly lower than the GUS’s flash estimate

The inflation data for January was revised by as much as 0.6 pp. (from 17.2% to 16.6%) in February, which in our view was the result of significant revisions in the consumer basket. We believe that households strongly reduced the share of expenditure on products and services characterised by particularly strong price increases by replacing them with others, where possible. The biggest revision occurred in energy prices, where the price growth rate finally decreased to 29.7% YoY, vs. 31.1% in December (earlier, the GUS estimated that price growth rate in this category had increased to 34.0% in January). In our view, this may have been due to a decrease in the share of heating fuel in the inflation basket, which was the category that grew the most in the entire basket in 2022. Similarly, the price growth rates of the categories 'food and non-alcoholic beverages' (20.6% vs. 20.7%) and 'alcoholic beverages and tobacco products' (9.8% vs. 9.9%) were revised downwards. It will only be possible to verify our hypothesis when the GUS publishes the complete list of weights in the consumer basket for 2023.

Inflation peak turned out to be lower than we expected

We stand by our assessment that inflation reached its local maximum in February. Nevertheless, the scenario we signalled a month ago that peak inflation may turn out to be lower than our expectations (see MACROpulse of 15/02/2023) has been realised. Combined with the marked downward revision of the January inflation data, given the lower starting point, we see downside risk to our inflation path for the following months in which we assumed a gradual decline in inflation to 7.1% YoY in December 2023. We will present our revised scenario for inflation in the next MACROmap.

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