Market Awaits Clarity On Whether Inflation Moved Below Key Threshold

Poland will report much awaited flash August CPI readings and final Q2 GDP data at the top of the hour. The key thing to watch is whether headline inflation will print below the psychologically significant +10% Y/Y level. Consensus looks for a headline inflation of exactly +10% Y/Y, according to a Bloomberg survey (forecast range is +9.7% to +10.2%).

• BGK write that inflation may ease to +9.8% Y/Y and remind that some MPC members are making interest-rate decisions conditional on inflation reaching single-digit territory.
• mBank speculate that final August CPI inflation could deviate from the flash reading, due to the expected adoption of a bill which retroactively lowers energy prices for households, which could take place just before the publication of final data on September 15. Assuming this would not materialise, they expect inflation to print at +10.1% Y/Y (core at +10.2%); correcting for the energy price cut, headline inflation could print at +9.9%. They note that in any case, the MPC will be able to make the necessary calculations at the upcoming meeting and hence will already see inflation in single digits. Coupled with the MPC's tilt towards keeping unemployment low, this should convince policymakers to cut rates next week.
• PKO expect headline inflation to print at +10.0% Y/Y, meaning that it would be at the threshold of meeting the condition for lowering interest rates mentioned by the NBP Governor. They see an upside risks from fuel prices and a downside risk from food prices. In their view, if inflation cools to single-digit territory, a 25bp rate cut in September seems certain. PKO see a risk of a September cut even if the inflation outturn is marginally above +10%.
  
• Santander write that in their view CPI inflation "eased to +10.0% Y/Y" and point to a relatively narrow forecast range in surveys of economists. They expect the detailed Q2 GDP data to reveal that consumption and inventories were responsible for a disappointing overall outturn. They think that today's CPI and GDP data will help the MPC decide on whether to lower interest rates in September or October.