Inflation in July rises markedly
The final data shows that CPI inflation in Poland went up to 4.2% YoY in July vs. 2.6% in June, running in line with the flash estimate published by Statistics Poland (GUS). The July release of gas and energy prices, which went up by 19.9% MoM and 16.8% MoM respectively, was the main reason behind the inflation rise. It was reflected in a markedly stronger growth in energy prices (10.1% YoY in July vs. -1.6% in June). Inflation was also driven up by a stronger growth in the prices of food and non-alcoholic beverages (3.2% YoY in July vs. 2.5% in June) and higher core inflation, which according to our estimates rose from 3.6% YoY in June to 3.8% in July. A slower growth in the prices of fuels (1.2% YoY in July vs. 1.6% in June) had the opposite impact on inflation.
Inflationary pressures still elevated
Monthly core inflation in July, which we assessed to be 0.4%, printed above the seasonal pattern (ca. 0.2%), which indicates that the inflationary pressures are still elevated in the Polish economy. The stronger MoM growth in core prices was connected, to a great extent, with utility (water supply and waste disposal) charges having been raised markedly in all of Poland. In July, the prices in the “water supply” and “waste disposal services” categories went up by 3.1% MoM and 1.7% MoM, respectively. With mass media informing about the scale of utility charges planned for the coming months, it can be expected that the prices in those categories will continue to grow. As regards core inflation, it is also worth noting the continuing growth in the prices of services (6.2% YoY in July vs. 6.1% in June). We believe the wage pressure is the main pro-inflationary factor as regards the prices of services. Nominal wage growth in the national economy accelerated from 14.4% in Q1 to 14.7% in Q2, and we forecast that it will run at 14.8% and 15.0% in Q3 and Q4, respectively.
Food price growth will still be stronger
As regards the inflation data breakdown, it is also worth noting the markedly stronger annual growth in the prices of food and non-alcoholic beverages that was mentioned above. It largely resulted from the stronger price growth in such categories as “fruit” (5.4% YoY in July vs. 1.2% in June) and “vegetables” (2.1% vs. 1.1%), which we believe was connected with Spring frosts and hailstorms, which had a significant negative impact on the outlook for this year’s harvest. We believe this factor will continue to drive the price growth in this category up in the months to come. Furthermore, last year’s low base effects seen in such categories as “oils and fats” and “poultry” are also conducive to food price growth.
Inflation to remain elevated for a year
Today’s data published by Statistics Poland is consistent with our scenario, in which inflation will remain markedly above the upper limit for deviations from the inflation target (2.5% +/- 1 pp.) until August 2025 (see MACROmap of 29/07/2024). The inflation path that we expect to see in the coming quarters is thus consistent with our NBP interest rate forecast, which assumes that the rates will be cut for the first time in Q3 2025.
GDP growth stronger than expected
In accordance with the flash estimate published by the GUS, GDP growth accelerated from 2.0% YoY in Q1 2024 to 3.2% YoY in Q2 2024, printing above market consensus (2.8%) and our forecast (2.3%). Seasonally-adjusted quarterly GDP growth accelerated from 0.8% in Q1 to 1.5% in Q2 (upgrade from 0.5%). The data published by the GUS is a flash estimate, and the full data on GDP, including information on its structure will be published towards the end of August. We believe that the main reason why the GDP data was markedly better than we expected was the recovery in consumption, particularly in the services area, which is likely to have been stronger than we had initially assumed. However, we will only be able to see if it was really the case at the end of August, when the final data is published.
We believe that economic growth in the quarters to come will be supported by a gradual recovery in investments and a higher contribution of net exports. Today’s Q2 data on GDP, which is stronger than we expected, carries an upside risk to our economic growth forecast for 2024 (2.3% vs. 0.2% in 2023), and in our opinion is slightly positive for the PLN and yields on Polish bonds at the same time.
