Poland's consumer price index dropped 0.8% y/y in August, easing 0.1pp on the reading from the previous month, statistics office GUS announced on September 12. The drop is unlikely to spur rate setters to rate-cutting action, however.
Despite the continued fall of prices, which has persisted since July 2014, rate setters have reiterated many times in recent months that deflation is unlikely to prompt a cut in interest rates, as long as the economy is doing well. While growth in 2016 is thought unlikely to meet the government’s forecast of 3.4%, the shortfall is forecast to be just ten or twenty basis points.
In monthly terms, consumer prices fell 0.2% in August, the same rate as in July. The annual fall was driven by a 6.9% drop in prices in the transport sector, including a 10.2% plummet for motor fuel. Falling prices of commodities worldwide are a factor beyond Polish rate setters’ control and another reason the MPC says it will hold off on further easing.
Textiles and shoes also saw prices drop, by 4.8% y/y. Prices of food increased 1.4%, as they did in the restaurant and hotel segment, GUS data showed.
While deflation is externally driven, the chronic fall in investment and disappointing growth seen so far this year has provoked some talk of renewed pressure for loosening policy. That scenario was however denied by rate setters at their meeting earlier this month. If anything, the MPC’s next move may be a hike, the governor of the central bank Adam Glapinski hinted, although both the MPC and analysts seem to agree that is not on the cards this year or next.