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Inflation surprises! Has the NBP overdone it with monetary tightening?

ECONOMYInflation surprises! Has the NBP overdone it with monetary tightening?

Today’s inflation reading can be best summarized with one word – surprise. The central bank’s policy of keeping interest rates high is effectively stifling inflation, but the question now is whether it is doing too much.

US GDP growth

Yesterday, we learned about the results of GDP growth in the US. In Q4, it was 3.4% year-on-year after annualization. This is better than the expected 3%. Annualization is a very strange process, where we assume that the economy would behave throughout the year as it did in a given quarter. This concept, like the units of measurement used in the US, is popular in only a few countries. Americans clearly cannot be compatible with the rest of the world. The disadvantage of this approach is the fact that if we have a change, its scale is actually 4 times greater as a result of this process. That’s why 3.4% vs. 3% expected is a bit more like a 0.1% improvement in the standard annual reading. This explains the market reaction. After the data was released, the dollar gained, but not excessively. The weaker reaction of the dollar was also influenced by the fact that against the euro it is at its strongest in about a month and a half, so some investors are rather looking for a moment to take profits than an opportunity to buy more.

Other data from the US

Yesterday, we also got a series of other data from across the ocean. Jobless claims came out symbolically better than expected. Later in the day, we also got two sentiment indexes. As is often the case with surveys, they can give strange results. One index showed a large decline, while the other showed a significant increase. Their impact on the dollar was therefore rather small. The index of signed contracts for home purchases also came out slightly better. As a result, these data as a whole slightly supported the dollar, which was already strengthening slightly after the GDP data.

Inflation dives

Today we got preliminary data on consumer inflation in Poland. They say 1.9% year-on-year. Yes, this is the scale that was recently associated with the monthly reading. Expectations were 2.2%, so the actual reading was 0.3% lower. These are only preliminary data, but let’s be clear – this is very good news for Polish wallets. Even when we add to this the government’s withdrawal from the lower VAT on food, it means that inflation should still be within the inflation target. The markets are not reacting for now, but the comments are increasingly showing surprise. On the one hand, the announcements of keeping the interest rate at 5.75% with inflation three times lower sounds like madness. On the other hand, the NBP has entered into a serious conflict with the government, which rather reduces their willingness to make decisions. The second quarter in monetary policy may be very interesting.

Maciej Przygórzewski – chief analyst at and

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