Polish deflation marches on in May

Polish deflation marches on in May
By bne IntelliNews June 13, 2016

Poland's consumer price index dropped 0.9% y/y in May, statistics office GUS reported in a second reading on June 13.

While the result represents an improvement of 0.1pp over the initial estimate of the stats office and market consensus, and is 0.2pp above the reading from April, it still extends to run of deflation to 23 months. However, the persistent price fall remains unlikely to push rate setters into easing policy.
As has been the case for some time, prices in the transport sector drove the deflation as they fell 6.8% on the year, while the data includes a 9.9% decrease in price of automotive fuel for private transport. Prices of clothing and shoes fell 4.3%, while those in the recreation and culture segment dipped 3.1%. Food prices grew 0.7%, the same rate as the previous month.

In monthly terms, consumer prices expanded 0.1%, slower than April’s growth of 0.3%, GUS noted. "The main factor pushing prices up versus the previous month was fuel prices (+4.2% m/m), which was a result of both rising oil price in the global market and a weaker zloty," point out analysts at BZWBK.

However, with low global commodity prices remaining the main driver of Polish deflation, but outside the control of the Monetary Policy Council (MPC), rate setters have stressed they are unlikely to execute a rate cut as long as economic growth is unthreatened. Incoming central bank chief Adam Glapinski has flagged that he agrees that the current 1.5% benchmark is correct.

Meanwhile, analysts say they see signs that the drop in prices is slwoing. “Deflation is fading, although at a slower pace than expected. Our basic scenario assumes gradual growth of CPI with a positive reading occurring only in Q4,” Bank Millennium writes. 

That said, the market has been consistently wrong in predicting the end of Polish deflation throughout the trend. Forecasts throughout most of last year were for prices to halt their drop by the end of 2015.