According to GUS, the strongest contributors to the higher CPI were prices of fuels for private transportation, which increased from -2.3% year-on-year in March to +1.3% YoY. This reflects the strongest month-on-month rise in prices since Oct-17. Food prices increased by 4% YoY from 3.7% YoY a month earlier.
The core rate likely remained subdued (we stick to our 0.6% YoY estimate) after having dropped to 0.7% YoY a month earlier. This underscores a weak transition of solid wages into prices, even of services. We underline that the previous CPI details presented in the flash reading proved inaccurate when calculating the core rate – the initial YoY estimate was 0.2pp lower than the actual figure. Detailed data will also confirm if methodological changes confirm a lasting rise in clothing and footwear prices.
Outlook for inflation
We remain pessimistic over the prospects for inflation in 2018 – the headline figure is very likely to significantly undershoot the central bank March projection (2.1% YoY). The major argument against a CPI increase in the coming quarters is the deceleration of food prices (we expect deflation in this category in 4Q18), no sign of a pick up in core inflation and no increase in regulated prices.
The overall picture calls for a further softening of the MPC stance – not only is core inflation persistently low but the GDP revision for 2017 revealed very disappointing investments.