Downward trend in inflation to continue says ING BSK

Inflation will continue to fall in the coming months but the rate of its decline will slow, analysts at the bank ING BSK said on Monday.

The bank was responding to figures from the Central Statistical Office (GUS) showing that the prices of consumer goods and services (CPI) in April 2023 increased by 14.7 percent year on year, and by 0.7 percent compared to the previous month.

The increases were in line with GUS's preliminary estimates.

"We estimate core inflation, excluding food and energy prices, decreased slightly last month to 12.2 percent year on year from 12.3 percent in March," the ING experts said in a statement. "The decrease in core inflation is satisfactory, but compared to the Central European region it is a rather modest improvement of the inflation situation."

ING BSK added that inflation should fall below 10 percent by the end of the year, but cautioned the monetary authorities against taking any satisfaction from this, and using this drop as a basis for starting a monetary policy easing cycle.

The bank experts also warned that increased government expenditure resulting from manifesto pledges announced yesterday at the convention of Law and Justice, the dominant party in Poland’s ruling coalition, could drive inflation upwards.

"Electricity prices for households are kept below market prices and will probably have to be raised in 2024," said the statement. "An expansionary fiscal policy is also a risk for inflation. New expenditure under the electoral programme announced yesterday including the indexation of child benefits to PLN 800 (EUR 177), free medicines for young and senior citizens and exempting passenger cars from motorway tolls, which in 2024 will increase the deficit by about 0.7-1 percent of GDP."

According to ING BSK, the decrease in inflation in April to March is mainly due to the slower growth of food prices in annual terms, which is largely due to high interest rates.