Polish CPI dropped 0.6% y/y in November, statistics office GUS announced on December 15. The reading was disappointing, showing as it did deflation 0.1pp deeper than a flash estimate from late November, and has analysts worried that price falls could now extend into 2016.

While the estimate shows the deflation trend growing smaller for another month, the market had expected a quicker recovery. Consensus had predicted CPI would come in at -0.5%. In monthly terms, CPI fell 0.1%.

As in recent months, the November deflation came on the back of weak prices in the transport sector, which fell 8.2% y/y. Prices of textiles and shoes dropped 4.6%. Prices of food moved up marginally 0.2%, although that was also a disappointment. On a monthly basis food prices dropped 0.4%. 

The ongoing deflation trend runs counter to predictions that CPI would return to positive territory towards the end of 2015. Analysts now warn that CPI could remain in negative territory into early 2016.

"Consumer prices are growing slower than we were expecting and we think that deflation could persist at least during the next two months," BZ WBK writes. "We still expect positive annual CPI in the first quarter of 2016."  The analysts forecast CPI at -0.5% y/y in December, but that it will recover to around 1% by December 2016.

However, the November reading is thought unlikely to change much in terms of monetary policy, with the weak zloty trimming the room for manoeveur. At the same time, much will depend on the new line-up of the Monetary Policy Council (MPC), with the PiS government, a supporter of loose policy, set to appoint a majority of new members in January and February. 

In early September, the central bank Governor and head of the MPC Marek Belka all but dismissed the existence of any dangers to the economy that could provoke another cut in the foreseeable future. Several of those tipped to sit on the new board have made statements suggesting they would be cautious about cuts as well.

The central bank has recently changed its inflation outlook for the medium term. This year’s CPI forecast was revised 0.3pp lower to -0.8% because of a deeper-than-expected decline in food prices. Inflation for 2016 was revised upwards by 0.6pp to 1.5%, while the 2017 outlook rose 0.4pp to 1.6% with estimates on food and energy prices hiked.