Core inflation in Poland may sink deeper into the red in May

Flash estimate for headline CPI inflation showed a slower-than-expected 0.1% m/m rise in May compared with 0.3% in April. The year-on-year inflation rate is negative at -1.0% vs. expectations in the -0.9% to -0.8% range. Data confirms the utter lack of inflationary pressure around CEE even where growth is stable and the labour market is improving.

"Based on this flash estimate for headline CPI, we estimate that core inflation will work out to around -0.5% y/y for May – deeper than the -0.4%y/y which already attracted media attention in April for being a historic low." said KBC Market Research in a report.

Although headline CPI missed expectations, it had negligible impact on the currency. The reason for the negligence obviously lies in NBP´s openly expressed satisfaction with the current level of its interest rates.

"Another round of downward forecast revisions likely before year-end, in which we expect to see even 2017 forecasts lowered. Such trends keep the door open for rate cuts, although the rhetoric from incoming NBP governor Adam Glapinski suggests that this will not happen in the coming few months at least." adds KBC.