PL: Downside inflation surprise due to new basket weights

The Central Statistical office of Poland just released data regarding inflation not only in February, but also new weights and a relatively large revision of Januarys figures. The annual increase of prices was reported at 4.9% y/y, a surprise to the downside both from our side and the market. Moreover, Januarys inflation was revised from 5.3% to 4.9% y/y, as a result of the update of the inflation basket. In Monthly terms, inflation grew by 0.3%, against our expectations and the consensus of 0.4%.

The primary cause of the February surprise was the new weights, which also led to a significant revision of January's data (-0.4 percentage points). As the flash estimate for February was omitted at the end of last month, we received a comprehensive breakdown of inflation items today. Among the major categories, food prices increased by 6.2% y/y (0.3% m/m), energy and housing by 10.7% y/y (0.2% m/m), and transportation prices declined by 2.5% y/y (-0.6% m/m).

In the new basket, a large decrease in the weight of food is evident, with its weight at the lowest level since 2020. Furthermore, the weights for housing and energy have also declined, whereas the weights for transport and recreation have been revised upwards. The magnitude of these changes requires a revision of our inflation forecast for this year, likely resulting in a downward adjustment from the previous estimate of 4.5%.