Poland: CPI inflation slows to well below-expected 6.1% y/y in Dec - flash estimate

• Inflation slows to 6.1% y/y from 6.6% in Nov, comes in below 6.5% consensus
• CPI rises 0.1% m/m, coming in below 0.3% consensus
• Food/drinks inflation slows to 5.9% y/y, adds 1.6pps to inflation, we estimate
• Energy price growth rises to 9.8% y/y, adds 1.2pp to inflation
• Fuel price fall widens to 6.0% y/y, subtracts 0.4pp from inflation
• Core inflation looks to have slowed to 6.9% y/y or so, we estimate
• MPC likely to defy print and near-term disinflation outlook to hold rates in Jan on uncertainty

Polish CPI inflation slowed to 6.1% y/y in December from 6.6% in November, coming in well below the 6.5% consensus expectation to mark the slowest pace since September 2021, according to a?flash estimate?released Fri. by Statistics Poland (GUS). In one-month terms, CPI rose 0.1% m/m, coming in below the 0.3% consensus, with that down from 0.7% in November but even with the year before.

Food and non-alcoholic drink prices rose 0.2% m/m in December, compared with a 0.9% rise the month before and a sharp 1.4% rise the year before. The annual reading thus slowed to 5.9% y/y from 7.2% the month before to hit the lowest level October 2021. Food and non-alcoholic drinks exerted a 1.6-pp contribution to CPI in December, down from 1.9pps the month before, to be the lowest in some time.

Passenger fuel prices fell 1.8% m/m in December, compared with an 8.8% rise in November and a 1.6% fall the year before. Lower global oil prices helped deliver the decline, though the annual print ticked up to 6.0% y/y from 5.7% the month before. Still, the downward contribution of fuel to headline CPI held at -0.4pp in December, we estimate.

Energy prices fell 0.3% m/m in December, compared with a 0.2% fall in November and a 3.4% fall the year before. In annual terms, energy inflation rose to 9.8% y/y from 7.9% the month before. This component continues to be heavily influenced by the war-related high base and by government intervention, with the Energy Shield in place for all of 2023. This has been extended to end-H1 2024, but the further fate is unclear. We estimate energy contributed 1.2pps to inflation, up from 0.9pp in November.

CPI inflation in annual terms was down 0.5pp in December from November in annual terms. We estimate -0.4pp came from food while fuel was flat and energy added 0.3pp more, leaving a net 0.1pp decline. That suggests the other components accounted for a big -0.4pp contribution to CPI inflation, indicating a broader slowdown. Restaurant and hotels and recreation and culture prices were up fairly sharply in December 2022, and perhaps these helped lead to the downside inflation surprise.

Our preliminary core inflation forecast for October is something like 6.9% y/y, to be down from 7.3% in November.

Overall, headline inflation slowed in December by much more than expected. If Law and Justice (PiS) had won re-election, one might have expected the Monetary Policy Council to respond in January with a rate cut. But the MPC, whose majority was named by PiS, will not want to help, or be seen helping, the new Donald Tusk-led government. Instead, NBP head Adam Glapinski, who the new ruling coalition still might try to push out, and the majority he leads is likely to highlight uncertainty and to leave rates flat. That basic message seems likely to be given until April, when we see the first real chance for a rate move. Yet, if inflation does ride base effects lower in early 2024, this could add pressure on the council to cut, but the fact that the stats office won't release its new inflation basket until Mar 15 is likely to lead to holds in February and March.