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Inflation slows to 4% y-o-y in July


The consumer price index (CPI) amounted to 4% y-o-y in July, a deceleration compared with the previous month, the Central Statistical Office (GUS) reported. The figure is slightly below market expectations, which averaged 4.2% y-o-y.

The highest price increase in the 12 months to July was recorded in transport, a category that includes car fuel (up by 6.8% y-o-y), followed by housing and energy (up by 6% y-o-y). Above-average price growth was also noted in food and non-alcoholic beverages (up by 5% y-o-y) and in education (up by 4.7% y-o-y). Prices in the alcoholic beverages and tobacco products category went up by 3.8% y-o-y, in health by 3.7% y-o-y, and in communication by 3.6% y-o-y. Prices in hotels and restaurants increased by 2.9% y-o-y and in recreation and culture by 1.3% y-o-y. The only category to register a decline in prices in July was clothing and footwear (down by 5.1% y-o-y).

On a month-on-month basis the CPI was -0.5%.

In January-July consumer prices rose by 4% y-o-y. We forecast that in 2012 as a whole the average annualised CPI will amount to 3.9%.Consumer price index in Poland (%, y-o-y), July 2011-July 2012Having increased sharply in June, the rise in consumer prices in Poland slowed down in the month of July. The deceleration was greater than market expectations, and came despite a slightly lower reference base compared with June. Nonetheless, the consumer price index (CPI) remained well above the upper end of the central bank’s target band (2.5% y-o-y +/- 1 p.p.).

The main factors that contributed to the easing of inflation in July were slower (though still quite rapid) growth in the prices of food and fuel, a strengthening of the zloty and a sharp decline in the prices of clothing and footwear. However, it is precisely external factors such as high global commodity prices as well as the weakness of the country’s currency (particularly against the dollar) that have kept inflation in Poland at a very high level throughout the past several months.

We expect deteriorating economic conditions to keep demand pressures low in the months ahead. A more sluggish global economy should also exert a moderating effect on global oil prices (though the fraught political situation in the Middle East is a source of risk here). However, rising food prices continue to pose a potent risk for inflation, especially following the explosion of world grain prices in July caused by a drought in the United States and the prospect of a poor harvest in other parts of the world.

Therefore, while inflation appears to be gradually coming down, it is unlikely to return to within the NBP’s target range in the coming months. We expect a more significant fall in inflation to occur only in November, when the impact of flagging economic growth will combine with very high base effects.

Paweł Sionko

Senior Economist

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