Polish deflation soldiers on in June

Polish deflation soldiers on in June
By bne IntelliNews July 11, 2016

Poland's consumer price index dropped 0.8% y/y in June, statistics office GUS reported in a second reading on July 11.

The result confirms the initial estimate of the stats office and market consensus, and also is 0.1pp better than the reading from May. But the slight improvement does not provide any solid ground for forecasts on when the run of deflation – having lasted a full two years now - may end. At the same time, the persistent fall of prices remains unlikely to push rate setters into action.
 
As has been the case for some time, prices in the transport sector drove the deflation in June, as they fell 6% on the year; the data includes a 9% decrease in the price of automotive fuel for private transport. Prices of clothing and shoes fell 4.1%, while those in the recreation and culture segment dipped 3%. Food prices grew 1.1%, faster than the 0.7% growth the previous month. In monthly terms, consumer prices expanded 0.2%, slightly faster than May’s 0.1% expansion, GUS noted. 

With low global commodity prices remaining the main driver of Polish deflation, and therefore largely oblivious to monetary policy, the MPC has long stressed it is unlikely to execute a rate cut as long as economic growth is unthreatened. However, according to the latest inflation report from the National Bank of Poland (NBP) - also released on July 11 - the economy is likely to slow.

The report forecasts growth in 2016 at 3.2%, with an acceleration to 3.5% next year and 3.3% in 2018. The NBP’s previous projection predicted growth at 3.8% both this year and next.

"Consumption will remain the main driver of GDP growth over the projection horizon while the positive contribution of gross fixed capital formation will decline comparing to the previous years’ levels," the report predicts.

The new head of the NBP, Adam Glapinski, said earlier in July that he is not convinced by the new outlook, and that he thinks growth will come in close to the 3.6% seen in 2015. The governor pointed to rising wages, good consumer sentiment, and the positive financial situation of Polish companies as positive drivers.

The NBP forecast CPI at -0.5% in 2016, 1.3% in 2017 and 1.5% in 2018 in its new projection. In the previous report, the figures were -0.4%, 1.3%, and 1.7%, respectively.

Analysts insist CPI will remain negative in the coming months, but move into positive territory towards the end of the year. 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.

Data

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