PPI Deflation Expected To Support Near-Term Moderation Of CPI Growth

Local sell-side desks released their initial comments on the latest PPI reading, which indicated that factory-gate prices fell more than forecast. Poland's PPI came in at -6.4% Y/Y in December (vs -5.8% expected) and -0.8% M/M (vs. -0.6% expected).

• ING note that PPI deflation deepened in December and CPI inflation should fall quickly at the beginning of 2024. However, this short-term trend doesn't imply rate cuts in 1Q2024.
• Pekao attribute the drop in PPI to zloty strength as well as lower wholesale prices of fuels and energy. They think we will see the trough in PPI trajectory in 1Q2024, which will be followed by a trough in the CPI path.
• PKO write that strong PPI deflation was a result of a considerable correction in the oil sector (-3.7% M/M) among others, while noting that price declines in manufacturing are broad-based and were observed in 18 out of 22 tracked sectors.
  
• The Polish Economic Institute note that the decline in manufacturing prices weighs on the overall PPI, resulting in negative readings since mid-2023. Deflation is most prominent in industrial manufacturing (-7.9% Y/Y).