Glapiński was pleased with the drop in CPI inflation to around 6%, in line with the BNP’s previous expectations.
The president noted that inflation in Poland is lower than in the region (Czech Republic, Hungary, Romania and Slovakia), but comparing the Harmonized Index of Consumer Prices (HICP) between CEE countries is complicated since the scale of Anti-inflationary protection measures differ from country to country. In Poland, freezing energy prices and 0% VAT on food reduced headline inflation by about 4.9 percentage points. Taking this into account, Poland’s HICP inflation would be higher than that of the Czech Republic and potentially even the highest in the region.
According to the NBP, the main factors behind the decline in inflation in recent months include: (1) moderate demand pressure (more difficult to raise prices, lower inflation expectations, less general acceptance of price increases) , (2) a decrease in inflationary pressure from abroad, (3) freezing of regulated energy prices (electricity, gas, heating) and extension over time of the 0% VAT rate on food and (4) strengthening of the PLN (a 10 percent appreciation reduces inflation by about 1 percentage point).
In the opinion of the BNP, in the coming months the fall in inflation will be deeper than expected in the central bank’s November projection and in the first quarter it could approach the inflation target (2.5%, +/- percentage points ), mainly due to the extension of the shield against inflation in energy and the zero VAT rate on food.
Glapiński highlighted that the outlook for the second half of the year is uncertain and that inflation could temporarily rise “sharply” (up to around 6-8% year-on-year) in December 2024. The rise in inflation is due to three factors. Firstly, restoring the VAT rate to 5% should add around 0.9 percentage points to inflation. Second, energy prices are expected to rise. A complete unfreezing of electricity, gas and heating prices could add around 4 percentage points to inflation. Third, expansionary fiscal policy (particularly an increase in public sector wages) could generate higher demand pressures than previously expected, adding around 0.1 percentage points to inflation in 2024 and around 0.4 percentage points in 2025.
According to Governor Glapiński, the MPC should now focus on core inflation, which better reflects the medium-term inflation trend. Core inflation should continue its decline and may favor a “permanent” fall in inflation. Despite the volatility of inflation in 2024 (temporary decline to the GNP target in the first quarter and then increase), a sustained fall in inflation to the target is not expected until the end of 2025.
The inflation profile outlined by President Glapiński is close to our forecasts.