In August, the CPI in Poland accelerated to 5.4% yoy from 5.0% in July, more than expected (consensus and ING + 5.2% yoy). The acceleration is due to increases in gas prices this month (+ 12.4%, which pushed the price of energy up to 6.1% year-on-year from 5.3% in July), high food prices (+ 3.9%) and the persistence of a high level, and in recent increase, inflation (we estimate it at 3.9% yoy against 3.7% in July) .
We have been writing since the start of the year that there will be no post-recession decline in core CPI in Poland. High inflation was already entrenched before the pandemic, and after the Covid-19 epidemic, new risks emerged from commodity prices, supply chain disruptions and major global fiscal stimulus. Central banks in the Central and Eastern European region say the CPI is of greater concern than the fourth wave of Covid-19.
We will not know the detailed outline of the price changes until September 15th. In our view, strong growth in the prices of services continued in August, particularly those related to tourism and recreation, where consumer demand shifted after the easing of health restrictions. Rising production costs are also expected to keep raw material prices high.
The last time the country experienced inflation above 5.0% was in 2001. It was a year when, for the first time, central banks managed to keep the annual CPI rates down. below 7.5% and the National Bank of Poland was still building its credibility after inflation. shock at the start of the economic transition. Over the next 20 years, until August 2021, CPI inflation was below 5%.
Compared with December, prices in Poland have already increased by 4.7%; in July, prices rose 4.5%. This indicates that high inflation was only slightly offset by base effects last year. We have to keep in mind that even before the pandemic the price growth in Poland was close to 5%. Besides regulatory factors, the high CPI is caused by the structure of GDP which relies heavily on consumption, while investment is unusually low. Consumer demand will be further boosted by tax changes in the Polish Deal, which, in addition to the delayed impact of the PPI hike, are also expected to keep inflation high next year. We estimate that on average in 2022, CPI inflation could reach 3.9% year-on-year, slightly lower than this year’s average (around 4.5%).
High inflation, with a strong chance of reaching 5.5% yoy in December, reinforces our expectation of a first rate hike in November. Jerzy Kropiwnicki of the MPC recently declared his support for the rate hike. With the support of the three other hawkish members of the MPC, this gives four votes in favor of such a decision in the council. November’s inflation projection should also call for tightening, we believe.