Polish CPI peaks in February

Polish headline CPI jumped to 4.7% year on year from 4.3% a month earlier, above the market expectations of 4.4%.

A broad rise in the core component is largely to blame – a mix of regulated prices and a massive minimum wage hike. But in the coming months, we expect inflation to subside given lower oil prices and lacklustre demand.

The rise in core inflation was broad-based, including housing (rents, garbage collection, etc.), as well as demand-driven categories, such as education and furniture. The generous rise of the minimum wage (15.6%) and previous demand pressure pushed up the price of hotels and restaurants. Also, the impact of an excise rise on alcohol and tobacco was stronger than expected. Changes in the inflation basket had a negligible impact on the headline.

As of March, CPI should subside, and decrease even further in April as the pandemic spreads. The Covid-19 may cause some short term rise of prices, but the disinflationary impact should prevail, especially in case of oil prices.

Some necessity products like canned food, hygiene products and medication may become more expensive, as households stockpile them, but their weight in the CPI basket is just 8%. So far local commodity exchanges show no pronounce rise in food prices in early March with the exception of poultry.

On the other hand, weak demand should prevail and result in substantially lower prices in leisure and hospitality, recreation etc. (e.g. cinemas) and overall prices due to weak demand. Above categories also constitute about 8% of the CPI basket. The most disinflationary factor should be lower prices of some durable goods, such as automobiles.

Also, the collapse of oil prices should deduct from CPI – fuels for private transportation constitutes about 5% of the CPI basket. If the crude price remains at the US$35/bbl level, this will subtract 0.7pp from the headline. Hence CPI should move back to 3.5-3.6% YoY in April.

The 2020 average should be close to 3.5% YoY, rather than 3.9% we expected.