Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
The Governor moves to a discussion of inflation outlook, noting that inflation will almost certainly increase in coming quarters, but the magnitude of this increase comes with great uncertainty. He notes that inflation will likely be significantly above +5% Y/Y at the end of the year (see chart below for a scenario analysis based on various assumptions re: energy price caps), with core inflation seen stable around +4% Y/Y in 2H2024.
- The official reiterates that part of the VAT hike was passed on to consumers, but there is uncertainty around the remainder of the tax hike. Several largest retail chains kept prices stable in April, but may still pass the VAT hike on in subsequent months.
- Glapinski says that rising inflation expectations (even as they remain relatively low) pose a risk, as they can boost inflation, creating a dangerous feedback loop.
- The Governor says that rapid wage growth is the main concern for the MPC, due to its potential to affect inflation through supply-side (larger production costs) and demand-side (more disposable income) pathways.
- What can affect the transmission of rising wages to consumer prices are (1) households' propensity to save, and (2) the readiness of enterprises to accommodate rising costs by decreasing their profit margins.
- The Governor reiterates that uncertainty around fiscal policy remains elevated. There is more information on energy price caps, but little clarity on campaign pledges surrounding to social security spending, while the spectre of EU Excessive Deficit Procedure continues to linger.
- The Governor reiterates that the front line in Ukraine may move closer to the Polish border, which would affect a number of macroeconomic factors - the exchange rate, consumer sentiment, perceptions of risk etc.
Fig. 1: NBP Inflation Scenarios For 2024
The red line represents core inflation. The blue line represents headline inflation, assuming a partial withdrawal of energy price caps proposed by the government. The green line represents headline inflation assuming that the energy price caps are left unchanged. Dotted/dashed lines represent projected values.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.