Polish headline inflation falls year-on-year in November, likely to remain below NBP’s target in 2019

Poland’s headline inflation came in flat in the month of November, suggesting that the annual inflation dropped to 1.2 percent year-on-year. The surprising fall of the headline inflation was driven by food prices that dropped 0.1 percent sequentially. This has created a negative base effect in year-on-year inflation, because some food prices spiked the end of last year, noted KBC Market Research in a report.

The inflation outlook for Poland is now mixed. On one hand there would be a price hike in regulated energy prices at the start of the next year, which might positively contribute 0.3 percentage points to the headline inflation. Meanwhile, on the other hand, food and fuel prices might decline in months ahead, which more than compensate the energy price hike, stated KBC Market Research.

Overall, the headline inflation might stay below the National Bank of Poland’s target of 2.5 percent in the whole of 2019, implying that the central bank might stand pat even next year. The only chance for a rate hike will represent a considerable and persistent depreciation of the zloty.

“While we expect the zloty will be weaker next year we begin to doubt that the currency will be weak enough to trigger a start of NBP’s monetary tightening in 2019”, added KBC Market Research.