CPI in line with expectations, but core inflation does not ease its grip

The flash estimate of August inflation indicated that prices rose by 4.3% y/y - a result very close to the consensus forecast (4.2% y/y). However, persistence of the core inflation may trigger some concerns. CPI inflation excluding food and energy, instead of falling to a cyclical low, grew close to 3.8% y/y according to our estimates based on today's Statistics Poland (GUS) publication.

CPI, PPI and core inflation in Poland (% y/y)
 
Source: GUS, NBP, Macrobond, Pekao Analizy

The August inflation reading, compared to July, had promised to be a tranquil one: the key jump in the price of energy (linked to the partial unfreezing of tariffs) had taken place in the previous month, while adjustment of food prices due to update of the VAT tariffs ended in June. However, it was not without a few developments worth noting, in particular:

•    Food and non-alcoholic beverage prices fell by just 0.1% m/m. This was a noticeably weaker decline than we had expected (-0.5%) - one should have seen seasonal minima in fruit and vegetable prices in August. The significantly weaker-than-forecast decline in food prices is also an unfavourable proxy for the remainder of the year, as we expect food price increases to accelerate in 2H24 due to adverse weather conditions.
•    Fuel prices were characterised by relative stability (-0.9% m/m). Our concerns about a stronger rise in oil prices were linked to the unstable situation in the Middle East; however, for financial markets, concerns about a possible recession in the US proved more important. The publication of the worse-than-expected Payrolls report at the beginning of August clearly lowered Brent crude oil prices on global markets, although the effect was only temporary.
•    Regarding energy prices, we saw a movement of 0.1% m/m and 10.3% y/y. Such a high divergence of the monthly and annual rate is obviously a statistical base artifact - after partial release of energy tariffs in July this year, the price of energy jumped and remains at a new elevated level.

Flash CPI reading allows to estimate August core inflation. Our calculations show that inflation excluding food and energy prices was around 3.8% y/y in August. Such a reading indicates high persistence of core inflation - it appears that the price dynamics excluding food and energy have remained stable since May and are likely to remain there at least until the end of the year, only to accelerate slightly in 2025. Such persistence of domestic inflationary pressures, combined with faster-than-consensus economic growth for 2Q24 and an increase in next year's public finance deficit, undoubtedly will not spur the MPC to take up early discussions on cutting interest rates in Poland.