Poland Macro Weekly: Approaching a single-digit inflation

Election promises fair – We took a closer look at flagship election promises of the main political groupings, which we find rather generous and focused around social transfers. Tax cuts are also in the game for most of the parties.

Despite the slightly weaker-than-expected reading for July the CAB data confirm that Poland's external position keeps improving. CAB in July amounted to EUR 566m, which in terms of a 12m rolling sum translated into a 0.3% GDP surplus, against 0.1% GDP in June. Exports grew by 1.3% y/y, driven again mainly by the automotive sector. Some rebound in domestic demand for cars was observed in case of imports, however, the overall figure showed 8.9% y/y decline spread across majority of categories.
CPI inflation for August was confirmed at 10.1% y/y vs 10.8% y/y in July. Prices of goods increased by 9.8% y/y and prices of services by 11.1% y/y. Our estimate shows that core inflation (CPI excluding food and energy) stood at 10.0% y/y vs. 10.6% y/y in July. Consumer prices did not change during the month and have not grown for 5 months now. In September, inflation will be single-digit and the scale of its decline may be deepened by regulations regarding prices of energy and medicines.
P.Borys, head of the Polish Development Fund, stated that the government has instruments which are effective in keeping EURPLN in an optimal range of 4.40-4.60. He advised the MPC to take into consideration FX developments when taking future decisions.

Data to be released this week will likely confirm that the economic activity remained subdued in August. Construction probably was the only bright spot (+1.5%) with both industrial output and retail sales projected to decline in y/y terms. The economy is, however, close to the turning point, as wages probably once again grew stronger than prices (see calendar on page 4 for details).