Restored VAT for foods leads to inflation rise

The final data shows that CPI inflation in Poland went up to 2.4% YoY in April vs. 2.0% in March, running in line with the flash estimate published by Statistics Poland (GUS). Inflation was driven up primarily by a stronger price growth in the “food and non-alcoholic beverages” category (1.9% YoY in April vs. 0.3% in March), resulting from the restoration of the 5% VAT rate for foods. It is consistent with our scenario in which the full impact of the higher VAT rate on prices will only be reflected in May due to promotional discounts set by the largest retail chains (see MACROmap of 18/03/2024). Inflation was also driven up further by a stronger price growth in such categories as “energy” (-2.2% YoY vs. -2.5%) and “fuels” (-1.2% vs. -4.5%).

Inflationary pressures still elevated

A downward impact on inflation came from lower core inflation, which we estimate to have fallen from 4.6% YoY in March to 4.1% in April. The drop in core inflation was broad-based and could be seen in most of its categories, with the strongest price growth slowdown having been seen in “transportation (excl. fuels)” (as a result of the growth in prices of transportation services slowing strongly due to last year’s high base effect), “communication” (caused by the falling prices of both telephone & telefax equipment and services), “clothing and footwear” (resulting from a slower growth in the prices of both clothing and footwear) and “alcoholic beverages and tobacco” (mainly due to a slower growth in the prices of alcoholic beverages). We expect growth rate of core prices to have gone up from 0.5% MoM in March to 0.7% in April, meaning that it would remain above its seasonal pattern (ca. 0.5% for April) despite the strong appreciation of the PLN seen over the last couple of months. In our opinion, it indicates that the elevated inflationary pressures still persist in the Polish economy. We believe that the MoM growth in core prices will slow down in the months to come, though it will remain above its seasonal pattern.

Inflation rises again

Today’s data is consistent with our scenario that inflation has reached its local minimum in March. We forecast that the coming months will see a gradual inflation rise connected to a significant extent with the discontinuation of protective measures for energy prices and a stronger growth in the prices of food. Consequently, in H2 2024, inflation will diverge from the upper limit for deviations from the NBP inflation target (3.5% YoY) again. We expect the average annual inflation to be 3.3% in 2024 (vs. 11.6% in 2023) and 3.6% in 2025.

GDP data prints just ahead of expectations

In accordance with the flash estimate published by the GUS, GDP growth accelerated from 1.0% YoY in Q4 2023 to 1.9% YoY in Q1 2024, running above the market consensus (1.8%) and our forecast (1.2%). Seasonally-adjusted quarterly GDP growth accelerated from -0.1% in Q4 2023 (downward revision from 0.0%) to 0.4% in Q1 2024. 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 May. In our opinion, GDP growth between Q4 2023 and Q1 2024 was driven up primarily by a higher contribution of consumption combined with an increase in households’ real wages. Another factor expanding the economic growth in Q1 was a stronger (i.e. less negative) contribution of growth in inventories that resulted, to some extent, from a deceleration of reduction of excessive buffer inventories accumulated in the industrial manufacturing sector during the pandemic and after the outbreak of the war in Ukraine. An opposite impact most probably came from lower contributions of investments and net exports.

Upside risk to our economic growth forecast

We expect the YoY economic growth to accelerate in the quarters to come, driven by a further consumption recovery. Today’s Q1 data on GDP, which is stronger than we expected, carries a slight upside risk to our economic growth forecast for 2024 (2.8% vs. 0.2% in 2023), but at the same time we think it is neutral for the PLN and the yields on Polish bonds.

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