Economic comment

Final inflation data for September confirmed the preliminary reading at 2.9% y/y and 0.0% m/m. According to the GUS release, food prices fell by 0.4% m/m, which is 0.1 pp less than their preliminary print. Fuel prices dropped by 0.4% m/m and energy prices rose only by 0.2% m/m, while we had forecasted an increase of over 1% m/m in the latter category, based on the assumption of a significant rise in heat prices. Apparently, that assumption turned out to be incorrect, although detailed GUS data show the first signs of heating price increases. We believe CPI inflation in October will likely return to a level starting with a “3”, which, together with the September economic data set (which we expect to be strong), will support the MPC’s decision to keep interest rates unchanged at the next meeting in November.

We decided to estimate what portion of Polish exports is made up of re-exports, i.e. the sale abroad of products purchased in other countries without processing (or with minimal processing) or use as intermediate goods. Based on our analysis, we estimate that re-exports account for approximately 10-20% of total Polish exports. Nearly half of re-exports consist of automotive industry products, clothing and footwear, plastics, and furniture. Around half of the re-exported products originate from Germany, and a significant portion of them (almost half) are sent back to that country. We guess this is a result of integration of Polish industry into German supply chain. Meanwhile, about 1/4 of re-exported products come from China. This suggests that the direct dependence of Polish exports on Germany and China is greater than one could have assumed.

NBP governor Adam Glapiński said during today’s conference that there is still room to ease monetary policy in Poland, although not great, and that the next interest rate cuts will be gradual, in 25bp steps. He refused to give clear guidance for November, saying that the MPC decides on ad-hoc basis, watching the current data, and nothing can be pre-committed. Glapiński pointed to 4.00% as the potential target level for the NBP reference rate and said that once the rate reaches this level, the Council will decide whether there is still room to ease further. (...)