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Goldman Sachs: Another revision of Poland’s inflation outlook

Goldman Sachs: Another revision of Poland's inflation outlook

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They currently expect inflation to reach 6.0% y/y by the end of the year (largely driven by higher food and energy prices).

Moreover, economists in the Gaza Strip currently assume that average annual inflation will be 4.7% this year and 3.8% next year.

According to GS, this means that NBP is likely to make a significant upward revision to inflation expectations at the November MPC meeting. GS experts also say that the latest data increases the likelihood of an interest rate hike in Poland this year.

GS experts also point out that the preliminary CPI reading from Poland is the first publication of this type of data from the Central and Eastern European region for the past period, which may indicate the risk of higher inflation also in other countries in the region.

Energy prices unexpectedly rose 0.8% compared to the previous month. In our opinion, with the ERO tariffs unchanged, they could have been caused by higher fuel prices as a result of the recent rapid increases in coal prices. These increases may extend until October, when the gas tariff will increase further.

Fuel prices increased 2.0% MoM, likely due to higher CO2 certification prices, as well as wholesale and retail margins. The recent rise in crude oil prices won’t affect fuel prices until October.

We estimate core inflation excluding food and energy prices rose to 4.0-4.1% y/y in September. We think the cooler September has accelerated the introduction of fall collections and associated increases in clothing prices. We believe that education prices have also been rising strongly. The effect of pro-inflationary demand on HoReCa prices could also remain strong. The data could finally reflect higher water charges (we’ve been looking for it in GUS data since June). All of these factors do not fully explain the rise in core inflation, which can also be driven by demand factors.

In our opinion, inflation will continue to rise, and may reach/break in October 6% YoY. There are more and more signs that inflation will continue to rise in early 2022. Rising energy prices could push CPI inflation up again in January, and in all of 2022 it will be on average higher than it was in 2021 ( 5% – 4.7%).

The course of inflationary processes makes it more and more difficult for MPC countries to maintain the narrative of the external nature of high inflation. However, we are of the view that the relevance of normative aggregate criteria to the epidemiological function of the Council’s response remains limited.

Although inflation forecasts for November will likely show inflation above the (broad) NBP target, the pandemic situation will not improve until then, and is likely to get worse. As a result, a November rate hike is very likely, but the first move in 2022 remains the base scenario for us.

Euro / Polish zloty

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