Polish Zloty: Is lower inflation likely to delay tightening? – Commerzbank

The Zloty is likely to continue underperforming amid political and central bank uncertainty, according to Commerzbank’s Tatha Ghose, despite Poland’s apparent inflation surprise. October’s flash Consumer Price Index (CPI) showed annual inflation easing to 3.5% from September’s 4.1%, while prices fell 0.3% month-on-month, likely pushing back tightening by the National Bank of Poland. Ghose emphasises that temporary fuel tax cuts, rather than genuine disinflation, account for the decline.

Are temporary fuel effects obscuring the policy signal?

"Further to our recent commentary on Poland’s central banking outlook, October’s flash CPI estimate came in weaker than expected on Friday: headline inflation slowed to 3.5%y/y from 4.1%y/y in September (a deceleration to 3.7%y/y was the consensus expectation). On our preferred seasonally-adjusted basis, the price level declined by 0.3%m/m. This will probably delay monetary tightening by Poland’s National Bank (NBP), but the reading is highly misleading as a signal of underlying inflation dynamics."

"Passenger fuel prices fell by 9.7%m/m as a result, reducing their estimated contribution to annual inflation by 0.8pp. This was not genuine disinflation, but a temporary tax intervention which is currently scheduled to expire at year-end (although likely to be extended)."

"The softer estimated core reading will give NBP a justification to remain on hold at this week’s meeting (Wednesday). But the underlying macroeconomic picture does not negate the case for tightening."

"In our view, the zloty will continue to underperform because of political and central bank uncertainty – this apparent positive inflation surprise will not help."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)