Inflation in an optimistic version. What will summer bring?

March brought a further decline in CPI inflation to 2.0% y/y. Thus, the series of declining readings that has been present since the summer was extended. This is the first observation below the NBP target in 5 years. Importantly, the structure of the data indicates a clear decline in core inflation in recent months. BGK experts estimate that in March it decreased to approximately 4.5-4.6 percent. y/y.

Higher inflation in April

– Our inflation forecast is definitely more positive than the market forecast – says Marcin Lipka, an expert in the Research and Analysis Department of Bank Gospodarstwa Krajowego (BGK), in an interview with MarketNews24. – We see CPI at 3.8%. for the fourth quarter of this year and as an average for the whole year.

March marked the nadir of inflation for the next few quarters. Already in April, inflation increased due to the increase in the VAT rate on food to the level before the introduction of the anti-inflation shield. Considering the declarations of retail chains, the scale of increases will be limited by the chains, which confirms strong disinflationary and deflationary processes in the area of ​​food prices.

In this category, the phenomenon of price stickiness will be visible and low dynamics will persist in the coming quarters. As a result, CPI may remain within the band of deviations from the Monetary Policy Council's target until summer.

What about inflation in the summer?

In the summer, analysts expect a further increase in inflation due to increases in energy prices, which will add approximately 1-1.5 pp to the CPI, but we do not know the final decisions in this regard. This will be accompanied by stabilization of annual core inflation around 4.5%. As a consequence, total inflation may again run above the upper band for deviations from the Monetary Policy Council's target and at the end of 2024, CPI inflation will be close to 3.8%.

– What leads us to estimate lower consumer price dynamics than in other research institutions is precisely because, in our opinion, food prices will be subdued – explains the BGK expert. – And this is due to global inflationary processes regarding food prices, their most important global index is at the levels from the beginning of 2021.

In 2025, inflation processes in Poland will gradually stabilize. Withdrawing the remnants of the anti-inflation shields will no longer increase the CPI so strongly. Core inflation will slowly decline. BGK's forecast assumes a permanent return to the band of deviations from the target in the second half of 2025.

The main risk factor for the outlined scenario remains the conditions on the raw material markets. Risks related to an unexpected strong increase in commodity prices may occur due to the materialization of geopolitical risk.

– Crude oil prices symbolically exceeding the level of USD 100 per barrel could disturb our forecast, but such a price is not a base scenario for us, we do not expect such problems – adds Marcin Lipka from the Research and Analysis Department of BGK.