Polish CPI inflation accelerated 0.1pp to 1.8% y/y in August from 1.7% in July, matching the consensus expectation and the flash estimate released in late August, according to data published Mon. by the Central Statistical Office (GUS). CPI inflation exceeded for the eighth month the 1.5% bottom end of the NBP’s allowable +/-1-pp fluctuation range around its 2.5% target. CPI fell 0.1% m/m, compared with a 0.2% fall the year before. This marked a 0.1pp reduction from the -0.2% given in the flash estimate. Fuel prices popped up in the month, doing the most to boost inflation. The print will again be neutral for the Monetary Policy Council.
Passenger fuel prices rose 2.2% m/m in August, helping swing the annual change to a 3.5% y/y rise from a 0.1% fall in July. The increase came as global oil prices pushed higher. Transport prices overall exerted a 0.2pp positive contribution to inflation, versus a neutral impact the month before. We forecast that fuel prices will rise by some 2.7% y/y in September, contributing 0.1pp to inflation. The latest fuel price rises have limited the impact fuel prices are likely to have bringing down inflation in December.
Food and non-alcoholic drink prices fell 0.6% m/m in August, compared with a 0.5% fall the year before. Such prices fall due to seasonal factors in August. Food prices have been somewhat higher than years past due to frosts that hurt the fruit crop, among others. Vegetables prices fell 8.1% m/m and fruit prices fell 4.0%. In annual terms, food and drink prices rose 4.3% y/y, down from 4.4% in July. The contribution to inflation fell by about 0.1pp to some 1.0pp in August, according to our calculations.
In terms of core inflation, we forecast that it will edge down 0.1pp to 0.7% y/y in August from 0.8% in July. Core inflation will thus remain very low.
Overall, the August inflation reading does mark slightly faster price growth, but the MPC is unlikely to be concerned with inflation at these levels, especially with GDP growth at near 4% y/y. The inflation prints will thus help the MPC decide to keep rates on hold. The council will likely continue to closely observe the labour market for any sign of wage pressure. For now, the council does not seem to be overly worried. Fuel prices will be another focal point in the coming months considering the latest moves. Some MPC members will continue to be sensitive to negative real rates with the key rate at 1.5%, but this faction doesn’t seem likely to have a majority to hike till sometime well into 2018.