Polish inflation acceleration likely to continue on rising domestic fuel prices

The recent acceleration in inflation is not limited to the euro area as it is being seen throughout emerging Europe as well. In the previous month, Czech inflation rose sharply towards its target from near zero. Also, Polish inflation has risen sharply from zero to 0.8 percent year-on-year between November and December. Poland’s inflation, as in the case of the euro area, is being accelerated mainly by energy prices.

In this context, weekly gasoline price data imply that the acceleration is set to continue. Domestic fuel prices are at present running at 8 percent-9 percent year-on-year, and possibly added 0.4 percentage points to the 0.8 percent inflation rate of December after having dampened headline CPI by about 0.5 percentage points during most of 2015.

“In January, we estimate this component will rise by 14 percent y/y and add 0.7pp to inflation”, said Commerzbank.

In spite of such a development, the spillover to core inflation is likely to stay minimal. Poland’s core inflation continues to be negative and although the year-on-year rate would reach positive territory in months ahead. The rate of core inflation continues to be zero month-on-month. In spite of the recent rise, sustainable acceleration of core inflation back towards its target is unlikely. However, this temporary upswing is expected to swing the Monetary Policy Committee balance towards hawks, added Commerzbank.

“We expect local currency CEE bonds to underperform in coming months”, noted Commerzbank.