Polish inflation inched down to 3.4% y/y in September from 3.7% in August – a bit below the consensus expectation and our expectation of 3.5% y/y. As in Hungary, the downside surprise can mostly be explained by a lower than expected rise in food prices.
Looking forward, we continue to think that Polish inflation will rise a bit in the coming month due to a minor base effect, but inflation is now unlikely to top 4%, and should come down quite a bit during 2010 to hit a low point of 2.2% in July. We now see inflation at 3.5% y/y in 2009 and 2.7% y/y in 2010.
Today’s inflation numbers should not change the outlook for monetary policy much. We expect the Polish central bank (NBP) to maintain its wait-and-see stance in monetary policy, and although the NBP still officially maintains an easing bias, there is no reason to believe that it will cut its key policy rate any more in this cycle.
Although Polish inflation surprised on the downside in September, and we expect it to inch down in the coming year, we are still somewhat surprised at the upward stickiness of inflation during the present downturn, given the sharp moderation of wage growth.
