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Sharp decline in inflation in May: temporary statistical effect or another sign of slowdown?


After a slight acceleration in April, consumer price growth slowed noticeably in May, with the consumer price index (CPI) down to its lowest level since February 2011. Even so, consumer inflation stayed above the upper end of the central bank’s target band of 2.5% y-o-y +/- 1 p.p.

The single most important factor that has kept inflation high for more than a year are fast-rising fuel and energy prices. Although global oil prices declined significantly in May, the effect on fuel prices in Poland has been limited due to a concurrent depreciation of the zloty against the US dollar. In our view, the deceleration of consumer inflation recorded in May was primarily due to a very high base of comparison (in May 2011 the CPI amounted to 5% y-o-y). However, the fact that price growth slowed down across almost the entire inflation basket might also indicate a gradual easing of inflationary pressures as economic activity weakens. In this connection, particularly noteworthy are the deceleration in price growth in the recreation and culture sector (for example, the fees for cable or digital TV dropped by as much as 8.2% compared with the previous month as a result of sales promotions) and the sharp decline in the prices of clothing and footwear.

In our view, consumer price growth is likely to rebound in June, when the comparative base will be substantially lower. Euro 2012 will also be a major factor supporting price growth, with particularly strong increases expected in hotel and restaurant services. And though the economy is slowing down and the impact of Euro 2012 should be only temporary, we do not expect the CPI to come back within the target range in the coming months, as Poland’s persistently high inflation is being fuelled mostly by external factors. A more pronounced decline in inflation is only likely to occur in the fourth quarter, when the comparative base will again be higher and the effect of high fuel and commodity prices and of a weak zloty will diminish. We forecast that in 2012 as a whole the average annualised CPI will amount to 3.9%.

Paweł Sionko
Construction Market Analyst, PMR

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