Poland's consumer price index grew 0.8% y/y in December, the first time prices grew since July 2014, statistics office GUS announced in a flash estimate on December 30.
The reading is clearly stronger than the consensus, which forecast growth of 0.5%, and extends the recent trend that has seen deflation easing with remarkable speed. With CPI now moving at a pace above the expectations of the Monetary Policy Council (MPC), and confirming earlier expectations of an escape from deflation by the end of the year, the chances of a cut to the benchmark, which has sat at a record low 1.5% since March 2015, appear to have all but disappeared.
What talk there is of a change in interest rates from rate setters regards a hike, although that is not expected before the end of 2017 at the earliest. On the other hand, dovish views might receive some push from disappointing macroeconomic data. Poland’s GDP expanded just 2.5% y/y in the third quarter on the back of the weakest investment since 2010.
With retail sales and industrial production readings disappointing as well, growth in the fourth quarter is expected at 2% at best, and economic expansion across the full year is now forecast at around 2.5%, a major difference from the government’s outlook of 3%-3.2% - a target that has steadily dropped from 3.8% at the start of the year.