Polish inflation surprised a bit on the downside in May. Inflation dropped to 3.6% y/y in May – down from 4.0% y/y in April and a bit below the consensus expectation and our expectation of 3.7% y/y.
Details
Polish inflation eased in May to 3.6% y/y, but the drop is primarily due to a relatively strong base effort. Core inflation remains more stable at 2.7% y/y.
Assessment & Outlook
The downside surprise on inflation is undoubtedly an argument for a rate cut of 25bp at the Polish central bank’s rate meeting later this month. However, we expect to inflation to remain at 3½-4% in coming months and to rise above 4% in the later part of the year due to a relatively strong base effect. This will make it hard for the NBP to cut rates further, and the NBP is therefore likely to adopt a wait-and-see stance after this month’s expected rate cut.
We now see inflation at an average of 4.2% for 2009, and 2.8% in 2010.
