After consumer inflation took a nosedive, it turns out that the base inflation rate is by no means falling. European data did not surprise. The dollar is strengthening in anticipation of the announcement after the FED decision.
Base inflation in Poland
Yesterday’s data on core inflation turned out to be less beneficial than expected. Core inflation, which is inflation without considering food and energy prices, stood at 5.4% against the expected 5.3%. This is a warning light. We are so delighted with the drop in consumer prices that we somewhat overlook the fact that a large part of this is based on highly variable elements such as fuel or energy prices. Looking at oil prices, the effect of falling fuel prices is ending, and the coming months will be significantly more difficult. As for energy, there will inevitably come a brutal reality check for consumers. Let’s hope it doesn’t happen amid difficult global events and a rise in commodity prices. So, what does core inflation tell us? Given that it exceeds consumer inflation by as much as 2.6%, we should note that there is a potential for a strong yo-yo effect on consumer prices.
Final data from Europe
In Europe, final data on inflation were published. Given that these data are published after we know partial data, this publication should not surprise the markets. So it was yesterday. Analysts expected 2.6% and received 2.6%. The market reacted with a slight strengthening of the euro after these data. The euro rate jumped about 2 cents. However, it is worth noting that the dollar rose more. The reason for the zloty’s depreciation to a much larger extent was the capital flight across the ocean.
Dollar strongest without data
The aforementioned capital flight across the ocean is an interesting process. There is, however, a withdrawal of investors from expectations of quick interest rate cuts. In recent days we are approaching a balance between the chances of a rate cut in June and no change in interest rates. The chances determined based on quotations of future contracts on the interest rate. The next FED decision will be tomorrow, but there the chances of a rate change are almost nil. However, the announcement after the decision will be important, because it will indicate the direction for the next few weeks. If the message is cautious, it could tip the chances of rate cuts in June. Such a scenario could lead to a further strengthening of the dollar.
Today, in the calendar of macroeconomic data, there are no important macroeconomic data readings.
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl and Walutomat.pl
