Polish Zloty: Inflation dip seen delaying tightening – Commerzbank

Commerzbank’s Tatha Ghose reports Poland’s October flash Consumer Price Index (CPI) slowed to 3.5% year-on-year versus 4.1% in September, with prices down 0.3% month-on-month, likely delaying National Bank of Poland tightening. He stresses the drop is driven by temporary fuel tax cuts rather than genuine disinflation. Ghose expects the Zloty to keep underperforming due to political and central bank uncertainty despite the apparent inflation surprise.

Temporary fuel effects cloud 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.)