PL: Slightly softer April’s inflation than anticipated

The Polish statistical office has just released the flash inflation estimate for April, a particularly significant month in the context of monetary policy. The figure stands at 4.2% year-on-year, slightly below the consensus (4.3%) and our expectations (4.4%). On a monthly basis, prices increased by 0.4% from March. This data should provide reassurance to the Monetary Policy Council, which is considering a rate cut and its magnitude for the next week.

The annual inflation rate decreased by 0.7 percentage points as opposed to March, primarily due to the base effect and lower fuel prices. Among the published categories, the highest growth was reported for food and non-alcoholic beverages, at 0.8% month-on-month and 5.3% year-on-year. Electricity, gas, and other fuels were approximately 0.4% cheaper than in March, yet still 11.3% more expensive than last year. The main contributor to the relatively low inflation in April was the fuels category, at -1.7% month-on-month and 8.3% year-on-year. Overall, the inflation trajectory continues to be lower than expected at the beginning of this year, creating opportunities for the National Bank to cut interest rates. Our outlook for the upcoming months is steady inflation at around 4% y/y until June, after which it is expected to decrease closer to 3% as the base effect from last years energy price hike dissipates. Such inflation levels could encourage the MPC to implement rate cuts exceeding 100 basis points by the end of the year, which is our current baseline.