Final inflation data ahead of the flash estimate
In accordance with the final data, CPI inflation fell to 6.2% YoY in December vs. 6.6% in November, standing above the GUS flash estimate (6.1%). Despite the strong drop observed over the last couple of months, inflation ran above the upper band for deviations from the NBP’s inflation target (3.5% YoY) for 33 months.
Slower food price growth as the main factor driving inflation down
Inflation was mainly driven down by a slower growth in the prices of “food and non-alcoholic beverages” (6.0% YoY in December vs. 7.3% in November). The drop in the prices of food and non-alcoholic beverages can be seen in all main sub-categories, and results from last year’s high base effects and from a clear decline in the prices of agricultural commodities observed over the last couple of quarters. Inflation was also driven by a slower growth in the prices of “fuels” (-6.0% YoY in December vs. -5.7% in November), the growth having been curbed by such factors as the PLN appreciation against the USD or the drop in the global prices of oil. Another factor driving inflation down was lower core inflation, which according to our expectations dropped from 7.3% YoY in November to 7.0% in December. December saw a broad-based decline in core inflation, which was reported for most of its categories, i.e. “alcoholic beverages and tobacco”, “clothing and footwear”, “health”, “transportation (excl. fuels)”, “recreation and culture”, “restaurants and hotels” and “miscellaneous goods and services”. We estimate the core inflation to have stood at ca. 0.3% MoM in December. This means that it stood above the seasonal pattern for December (ca. 0.0%), which indicates that the inflationary pressure is still elevated (see MACROmap of 15/01/2024). Energy prices, whose growth accelerated from 8.1% in November to 9.2% in December, were driving inflation up. The acceleration resulted from last year’s low base effect connected with a drop in the prices of liquid and solid fuels observed in December 2022 (see MACROpulse of 13/01/2023).
Inflation will soon temporarily reach the inflation target
In our revised scenario, we forecast inflation to keep on falling in the months to come, and the inflation itself will reach its local minimum at 2.3% in Q2 2024. We expect the inflation to start rising gradually from Q3 2024 onwards, reach a local peak of 4.8% YoY in Q2 2025, and then fall to 3.5% in Q4 2025. Consequently, in our scenario the headline inflation will fall below the inflation target of 2.5% YoY and stay there between March and May 2024. (see MACROmap of 15/01/2024). In our opinion, this will prompt the MPC to resume the monetary policy easing cycle. We believe that the MPC will cut interest rates in March and July 2024, each time by 25bp. Potential for further rate cuts is limited given the expected inflation rise in H2 2024. Hawkish statements made by NBP Governor A. Glapiński and MPC Member I. Dąbrowski last week as well as potential instigation of a procedure aimed at bringing Governor A. Glapiński before the State Tribunal are the main factors of risk for our forecast (see MACROmap of 15/01/2024).
In our opinion, today’s data on inflation is neutral for the PLN and the yields on Polish bonds.
