Local Analysts Tip Hat To Optimistic CPI Report But Warn Of Upside Risks To Price Outlook

Yesterday's confirmation of encouraging (from the NBP's perspective) May CPI readings was acknowledged by local sell-side desks, but many of them flagged upside risks to the inflation outlook and warned that disinflation may slow in coming months. As a reminder, the NBP will publish official core CPI readings for May at 13:00BST/14:00CEST.

• Millennium Bank said that May outturns were affected by supply-side factors and one-off adjustments, which will not necessarily be replicated in coming months. Meanwhile, price pressures remain broad-based and CPI inflation stays well above the NBP target. In their view, the current situation, as well as upside risks to the inflation outlook, do not open up room for rate cuts this year.
• Bank Pocztowysaid that the disinflationary trend will continue going forward, but its pace will significantly slow within 3-4 months, with autumn/winter likely to see headline inflation stabilise around +8%-9% Y/Y. Reaching single-digit territory will encourage most MPC members to cut rates, which may happen by the year-end, although in light of looser fiscal policy it would be prudent to keep rates unchanged for longer.
• According to ING analysts, although near-term inflation outlook has improved, there are more upside risks in the medium term. They believe that bringing inflation to the target would require wage growth of less than +5% Y/Y and a change of paradigm in fiscal policy, i.e. less consumption and more investment.
• Santander expect headline inflation to remain close to +10% Y/Y at the end of 2023, with core inflation approaching +8% Y/Y, which will make it difficult for the NBP to cut interest rates.
• In their research note this morning, mBank wrote that the window for quick falls in inflation will close towards the year-end, while price risks are tilted to the upside.
• BOS Bank wrote that it is unlikely that optimistic May results will be replicated in the near future. They see core CPI in double-digit area into the year-end and expect it to be above headline CPI inflation.
• A note from Pekao economists suggests that headline CPI inflation could ease to single digits in September and reach +7.8% Y/Y at the end of this year. They are most optimistic among the desks whose views we have seen so far and believe that the decline in core inflation is broad-based.