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Inflation Dips in February, But Resurgence Looms on the Horizon

ECONOMYInflation Dips in February, But Resurgence Looms on the Horizon

Inflation dropped to 2.8% year-on-year in February. However, the victory is modest if we compare the price increase to the situation of a year ago when in February 2023 inflation was at a record high of 18.4%. Inflation is set to rise again from April.

CPI inflation fell to 2.8% in February, down from 3.7% in January, below the market consensus of 3.2%. Thus, for the first time since March 2021, albeit transiently, inflation fell below the upper deviation boundary from the NBP’s inflation target of 3.5%.

The main reason for the inflation decrease in February was the lower price dynamics in the category “food and non-alcoholic beverages” (2.7% in February compared to 4.9% in January). The decline in the price dynamics of food and non-alcoholic beverages was noted in most of its major categories and resulted from the effects of a high base from a year ago, as well as from the clear reduction in agricultural commodity prices observed in recent quarters.

The fall in inflation was also contributed to by lower core inflation, which was 5.3% in February, down from 6.2% in January. The decline in core inflation was broad-ranging and was noted by GUS (Central Statistical Office) in most of its categories.

“We are close to the inflation target and let’s enjoy this moment, especially since it won’t last long,” says Dr. Przemysław Kwiecień, Chief Economist at XTB, in an interview with Market News 24. “The price increase has significantly slowed down, but prices are still rising. Inflation for March is likely to be even lower, but it will increase in the coming months.”

From April, we will return to a 5% VAT rate on food, and in the coming months, we will give up another protective shield, relating to artificially low energy prices.

In recent days, there has been a lot of data from GUS worth noting. The nominal dynamics of retail sales in companies employing more than 9 people increased to 6.7% in February compared to 4.6% in January, falling below the market consensus of 6.8%. The dynamics of retail sales counted in constant prices increased to 6.1% in February compared to 3.2% in January.

Stronger than expected increases in the real dynamics of total sales on an annual basis were greater than expected due to the increased real dynamics of wages in the enterprise sector to the highest level since 1999. This dynamics in February was 12.9% year on year. In real terms, or after adjusting for inflation, wages increased by 9.9% (compared to 8.6% in January).

“The significantly lower global food and oil prices and global energy prices are also well below the gloomy expectations of Autumn 2022,” comments the XTB expert.

In the structure of retail sales, GUS noted an increase in the real dynamics of sales in categories including durable goods. The dynamics of sales in the “cars, motorcycles, and parts” category increased from 23.3% in January to 26.6% in February. In the “furniture, consumer electronics and home appliances” category, the dynamics of sales increased to -5.2% in February compared to -16.8% in January, the highest level since January 2023.

In February, the consumer sentiment index for “making important purchases now” increased compared to January and reached the highest level since October 2021. The index also rose for “making important future purchases,” which was the highest since March 2020.

Discretionary goods are important because they relate to an area of the market where consumers have greater freedom to decide on the scope of spending. This includes clothing and footwear, home appliances, and services such as tourism, entertainment, and culture. These are expenses in such categories that we can postpone for a few months if our family finances mandate it.

“Inflation will rise and it may even exceed 6% by the end of the year, and the baseline scenario is that there will be no interest rate cuts this year, which will support the strengthening of the Polish currency,” explains the expert. “If the Fed and ECB cut interest rates, and they remain unchanged in Poland, then global capital will be more willing to ‘park’ with us.”

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