Poland: CPI inflation slows to below-expected 2.8% y/y in Feb, just above CPI target
Metodi Tzanov
Helping finance professionals understand what is going on in Emerging and Frontier Markets
Polish CPI inflation slowed to just 2.8% y/y in February from a revised 3.7% in January, hitting the lowest level since February 2021 and meaning inflation was just above the NBP's central 2.5% target and well within the 1.5-3.5% band, according to?data?released Fri. by Statistics Poland (GUS). CPI rose 0.3% m/m in February, down from 0.4% in January and well down from 1.2% a year earlier, a time that saw a very high base. But despite the headline rate nearly hitting the target, one must remember that the anti-inflation measures reduction inflation by something like 4-5pps, meaning inflation would be more like 7-8% y/y without.
Along with the February data and full, revised January numbers, GUS released the broad outlines of its new inflation weighting system for 2024. The revisions led to a downward estimate of January CPI inflation to the 3.7% y/y from the 3.9% originally published. The new weighting system upped the importance of food and non-alcoholic beverages (+0.6pp) as well as housing (+0.8pp). The precise levels of food and energy were not yet released [they will likely be out later this month], but it is likely they will play a bigger role this year, making the government's decisions on the anti-inflation measures for food and power, natural gas, and heating even more important. On the other hand, the weight of transport was lowered 0.7pp and that will likely make fuel price moves slightly less important.
In the breakdown, food and non-alcoholic drink prices fell 0.4% m/m in February, which was well down from the 0.9% rise seen the month before. The annual reading thus slowed to 2.7% y/y from 4.9% the month before in what was the lowest reading since June 2021. We estimate that food and non-alcoholic drinks exerted a 0.7-pp contribution to CPI in February, down from 1.3pps the month before. The government has already announced that the anti-inflation measure cutting the VAT on food to zero from 5% will not be extended when it expires at end-March and that means April should see prices rise. Competition, especially between the main discounters active in Poland, mean it will not all pass through to consumer prices, but the move will likely lift headline CPI inflation by at least 0.7pp or so.
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Passenger fuel prices rose 3.2% m/m in February, compared with a 2.3% fall in January and a 1.2% rise the year before. The annual price fall narrowed to 6.4% y/y from 8.3% the month before. The downward contribution of fuel to headline CPI narrowed to -0.4pp in February from -0.5pp in January.
Energy prices fell 0.1% m/m, compared with a 0.3% rise the month before and no change the year before. In annual terms, energy prices fell 3.0% y/y, compared with a 3.1% fall in February. Energy subtracted 0.4pp from inflation in February, the same as in January. The government now looks likely to withdraw the anti-inflation shield for energy when it expires at end-June, though a final decision has not yet been taken. For now, it looks like the price freezes will be lifted and the government will work to get regulated tariffs reduced. That is likely to lead to at least a 2-pp hike to inflation, though the ultimate level remains to be seen.
For the other components, there were no large changes going from January to February, but there was a general easing of inflation pressure. Goods price inflation eased to 1.4% y/y in February from 2.4% in January, which is the lowest in a long time. Services prices inflation slowed to 7.0% y/y from 7.6% the month before. In the end, we forecast that core inflation will slow to 5.2% y/y in February from 6.0% in January.
Overall, the headline inflation slowdown has been expected due to the high base, especially related to VAT, which was lifted on energy in January 2023 but was left unchanged this past January. However, as noted above, the anti-inflation measures are in place and so for NBP and MPC chair Adam Glapinski to say 'there is no inflation,' as he indicated at his last presser, is not precisely the case. At any rate, the ending of the anti-inflation measures, or their phasing out, will lead inflation back up later this year, and it looks like the rise will be some 2.5-3pps. After March sees inflation at 2.5% y/y or even below, inflation should return to the 5-6% levels. That will not be high enough to trigger talk of tightening, especially with the PLN so strong, but it will also be high enough to rule out cuts. The only chance for cuts is if inflation forecasts late in the year show an improved 2025-26 inflation outlook.