Poland takes another step towards escaping deflation

Poland takes another step towards escaping deflation
By bne IntelliNews November 14, 2016

Poland's consumer price index dropped 0.2% y/y in October, trimming its fall from 0.5% the previous month, statistics office GUS announced on November 14.

The reading confirms a flash estimate from the end of October and indicates Poland may be nearing the end of a deflation period that has stretched since July 2014. October is the third month in a row in which deflation weakened. Growing expectations of an escape from deflation by the end of the year means a cut in interest rates appears unlikely as ever. 

The driving issue behind the lowered deflation in October was the low base from 2015. At the same time, prices in the transport sector inched up 0.3%, including a rise of 1.8% in the price of motor fuel. Prices of food increased 0.4%.

A 4.6% drop in prices in the clothing and shoes segment pulled the headline CPI down. In monthly terms, consumer prices advanced 0.5%, after staying flat in September. Analysts at BZWBK suspect core inflation, which omits erratic data including global oil prices, also pushed to -0.2% y/y.

The low base of 215 "will continue pushing inflation rate up in the next few months," BZWBK suggests. "As a result, CPI growth may turn positive in November, or December at the latest, and in January it is likely to bounce to around 1% y/y. However, we think that for the rest of 2017 inflation rate should be relatively stable, due to still negative output gap and low inflationary environment abroad."

The latest inflation projection from the National Bank of Poland (NBP) is for prices to fall 0.6%-0.7% in 2016 before inflation picks up to 0.2%-5% in 2017. CPI is forecast at 0.2%-2.6% in 2018.