Bets rising on return to easing as Polish deflation pushes to 0.9% in 2015

By bne IntelliNews January 17, 2016

Poland’s consumer price index (CPI) fell 0.9% y/y on average in 2015, according to data released by the Polish statistical office GUS on January 15. The persistent fall in prices has many now forecasting a return to easing is on the cards.

December rounded off the year by extending the deflation trend that has run throughout. Consumer prices dropped 0.5% y/y in the final month of 2015, confirming a GUS’ estimate. The fall was little improvement on the 0.6% in November.

Analysts spent much of the year forecasting CPI would return to positive territory in the later months of 2015, but the readings have consistently denied those expectations. The consensus is now that inflation will return to growth very slowly this year.

The December reading came on the back of a 6.8% drop of prices in transport, and a 4.5% decrease in prices of clothing and shoes. Those drops were offset to an extent by prices rising 2.6% in healthcare and 1.2% in the restaurants and hotels sector. Food prices remained unchanged. In monthly terms, CPI dropped 0.2%.

Analysts now predict deflation will extend into 2016 but remain very divided as to when it will end.

“A return to inflation will be very slow in the context of the deepening fall of oil prices on the world markets," Bank Millennium writes. "For that reason, deflation will subside more slowly than expected but CPI should return to positive values in the first quarter.”

According to bank BZ WBK, however, the process will be much longer, and that is likely to prompt the Monetary Policy Board (MPC) to ease monetary policy in “the coming months”. “Deflation may last until the third quarter because of low prices of commodities and food,” the analysts predict.

Eight of the ten seats on the MPC will be filled by new appointments during February and March. While the council said on January 14 that monetary policy’s influence on CPI is limited as deflation is driven by external factors, some of the incoming rate setters have hinted they could favour a dovish policy.

That has some expecting a cut within the first quarter. “Our baseline scenario assumes a 50bp cut in [the first half of 2016]. We see March as the first possible timing for such a decision, as the new inflation projection will be released then,” Katarzyna Rzentarzewska at Erste writes.

The current MPC projection hit 2015 deflation on the nose at 0.9%. Inflation is expected to accelerate in 2016, but within a range of just 0.4%-1.8%. Economic growth is expected at 2.9%-3.9% in 2015. 

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