Prices rose by 6.2% in 2023. This is a significant improvement from 2022, but many observers were hoping for a faster decrease in the rate of inflation.
Eurozone Making History
Data from yesterday regarding industrial production in the eurozone does not inspire optimism. It fell by a whopping 6.8% over the year. Is this bad news? It appears so. The market expected a decline of 5.9%. To illustrate how significant this drop is, it’s worth mentioning that in the history of the eurozone there were only two periods of larger declines – the 2008 financial crisis and the coronavirus pandemic. However, in both of these instances the peak decline exceeded 20%. So, on a positive side, we’ve covered only one third of that path. On the flip side, if we were facing a similar move ahead of us, it would be very bad news. Already, markets are looking more favorably on the dollar than the euro. The dollar rate is the strongest against the European currency since January 5.
Inflation in Poland
The December inflation reading was 6.2%. Expectations were at 6.1%, so the difference is small but unfavorable for our wallets. Yet, it’s important to remember that a year ago the inflation was 16.6%, thus 2.5 times higher than currently. Unfortunately, there’s also bad news. Inflation projection shows a clear slowdown in the pace of price increases this year. But on the other hand, the same projection suggests an acceleration of GDP growth rate, which doesn’t put us in such a bad light. What impact does higher than expected inflation index have on the Złoty? Contrary to popular belief – it’s actually positive. The higher the inflation, the longer the high interest rates will be maintained. High interest rates in return positively affects the value of the currency. However, they also negatively affect the installments of variable interest rate loans.
Gas Prices in a Downward Spiral
Gas prices on the Amsterdam exchange have broken another key level. As of yesterday, we are below the €30 per megawatt-hour threshold. This is the lowest level since August. The reason for the decline is lower than expected gas consumption due to a warmer than anticipated start of the heating season. Analysts however point out that while the weather conditions are favorable to Europe, it’s not the case with the USA. There, prices have already started to increase due to rising demand for this commodity. Thus, one can expect the increases overseas to be reflected in our situation sooner or later.
Today’s macroeconomic data calendar should focus on:
2:00 PM – Poland – core inflation Index,
2:30 PM – Canada – Consumer Inflation,
2:30 PM – USA – NY Empire State Index.
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl and Walutomat.pl
