CPI inflation It surprises from month to month. In May it is only 4.0 percent year on year. The second reading of the Central Statistical Office turned out to be lower than the initial, the so -called quick report two weeks ago. Economists are positively surprised, emphasizing that the Monetary Policy Council now has ideal conditions for cuts of interest rates. But the MPC is particularly careful about inflation other than the basic measure.
Basic inflation. What is it and why is it important?
It's about base inflation. There are several types of it, but the key is the one that excludes the most variable prices of food and energy – susceptible to so -called supply shocks, i.e., for example, turbulence on global markets caused by events from global policy (fuel), regulatory decisions (electricity) or weather variability affecting worse crops (food). NBP monetary policy (i.e. what is Poland bank Central does with interest rates) has a limited impact on them.
It is different with base inflation. She can show whether this monetary policy is effective and also how persistent inflation is – Is it “sticky” And the economy is difficult to “get rid of” or maybe temporary. As the NBP explains, “it is assumed that base inflation is the part of inflation that is associated with inflation expectations and demand pressure, and which is not directly dependent on supply shocks.”
That is why the NBP follows the data on the base inflation, and the president Adam Glapiñski In recent months he has often referred to her. Although the NBP goal concerns the basic inflation indicator – CPI (index prices consumer goods and services). This goal is 2.5 percent, and the range of permissible deviations is 1 in both ways, i.e. between 1.5 and 3.5 percent.
Basic inflation is lowest in years
CPI inflation data for Maj GUS gave on June 13 (it was a second, improved reading). The level of base inflation is reported by the NBP and we still have to wait a bit for this message. Economists, however, are able to calculate it on the basis of the information already available now. According to these estimates, the basic inflation for May should be around 3.2 percent year on yearwhich would mean her further lowering (in April the base inflation was 3.4 percent) and at the same time The lowest reading in 5.5 years – From January 2020.
According to PKO BP economists, in July this “basic” inflation (CPI) will decrease rapidly – even to just below 3 percent. This will happen thanks to the reduction of the gas tariff and the so -called The effect of the base – the effect of increasing energy prices from July last year will expire. “At the same time, base inflation will be gradually falling, which at the end of 2025 should reach about 3.0 percent y/y” – they add.
This shows that base inflation, including the one regarding services, is more persistent than the prices of food or energy. Similarly, the experts of the Santander bank believe, who believe that base inflation “may go down slightly below 3 percent”. Meanwhile, “ordinary” inflation, according to them, may fall to 2.6 percent in August, and if not for geopolitical turmoil resulting in the increase in crude oil prices, it would be possible even a slightly lower level and hitting the NBP target (2.5 percent).
Nevertheless, the MPC can still find arguments for abstaining from interest rate discounts at a July meeting. Currently, expectations for another cut are moving to September (in August there is no decision of the Monetary Policy Council).
What is behind a decrease in base inflation?
What made base inflation according to economists fall? This is mainly lower price increases in the category “health” (medical services) and “communication” (more expensive internet) and “recreation and culture” (lower radio and television fees), it has also clearly slowed down prices foreign tourism (although the national one is not) and transport services.
What does the base inflation conquer? Wage pressurei.e. growing remuneration. “We forecast that the nominal dynamics of remuneration in the national economy will amount to 8.3 percent in Q2 compared to 10.0 % y/rw and sq. This can be seen in service prices (not only medical, such as a dentist or doctorbut also, for example, hairdressing and cosmetic), where the main cost is often the cost of work. In May, the services got up to 6 percent Year on year, clearly stronger than goods (3.3 percent), however, this is the smallest increase in five years.