Inflation Falls Short Of Consensus Call But Analysts Point To Worrying Outlook

Below we summarise initial reactions of Polish sell-side desks to the release of preliminary readings of Polish CPI for the month of October. Headline inflation narrowly missed expectations (+6.6%), cooling to +6.5 Y/Y from +8.2% prior.

• ING write that the period of the fastest disinflation is behind us and the timing of the trough in 1Q2024 depends on political and administrative decisions, e.g. on energy and gas subsidies. They expect the NBP to turn more cautious with monetary easing after an anticipated 25bp rate cut in November.
• mBank observe that core inflation (estimated at +7.9%-8.0% Y/Y) surprised to the upside, while fuel prices surprised to the downside. They see inflation momentum returning to the levels seen before the start of pre-election "inflation engineering". They expect price pressures to remain sticky amid economic recovery, with the NBP set to continue cutting rates by 25bp.
  
• In Pekao's view, core inflation likely fell to +7.9% Y/Y in October, even as the structure of inflation was slightly different than they had expected.
• PKO point to the first M/M increase in prices (+0.2%) since April, adding that food prices returned to M/M seasonal hikes after four months of monthly declines. However, fuel prices fell 4.2% M/M despite price increases observed since mid-October. They note that the decline in Y/Y inflation was boosted by base effects.
• The Polish Economic Institute write that food price inflation slowed to +7.9% Y/Y from 10.4% in September, which may have lowered the overall inflation rate by almost 1pp. They estimate that core inflation eased to +7.9% Y/Y. However, they warn that the coming months will bring a slight increase in inflation, to +7.1% Y/Y in December. Thereafter, inflation will resume its decline, albeit at a more gradual pace, averaging at +6.7% Y/Y in 2024, with wage pressures set to underpin services price growth.