Polish deflation deepens again in July

Polish deflation deepens again in July
By bne IntelliNews July 29, 2016

Poland's CPI dropped 0.9% y/y in July, deepening 0.1pp on the official reading from the previous month, statistics office GUS announced in a flash estimate on July 29.

As has been confirmed by rate setters many times in recent months, however, the long deflation run - in place since July 2014 - is unlikely to prompt a cut in interest rates, as long as the economy is doing well. 

On the other hand, the flash reading once more defied earlier expectations that deflation may have finally passed its trough. July was the fourth month so far this year to see prices accelerate their drop. Consensus had predicted consumer prices would fall 0.8%. 

In monthly terms, consumer prices fell 0.3% in July, reversing on June’s growth of 0.2%, GUS noted. The flash estimate did not provide a breakdown of inflation drivers, but commodity prices are likely in pole position.

Rate setters have maintained for months that the main drivers of deflation are external, and therefore CPI is unlikely to be sensitive to monetary policy. On top of their stated priority for economic growth over inflation targetting, as well as concern over financial stability in an already low-interest rate environment, that has helped the MPC shrug off pressure for easing.