Economic comment

In March, retail sales fell by 0.3% y/y against market expectations of +0.6% y/y and our forecast of -0.9% y/y. Seasonally adjusted real retail sales increased by 1.9% m/m and 1.0% y/y. In our view, the data look pretty good and we think that the consensus was actually too optimistic, given the Easter effect (last year it was in March, this year in April) and fewer shopping Sundays than a year ago. The negative headline reading was caused by the fall in food sales, while other categories looked solid, especially sales of durable goods. We think that today's data will not discourage the MPC from cutting interest rates at its next meeting in May.
 

Data for March have disappointed. Industrial production growth moved into positive territory (2.5% y/y), but less than expected and its rebound was based on calendar effects. Construction output, contrary to expectations, did not grow on an annual basis (-1.1% y/y). We expected wage growth to return above 8% y/y, meanwhile, there was a further deceleration to 7.7% y/y. Employment continued to fall by 0.9% y/y, PPI inflation turned slightly less negative and the April business sentiment survey showed deterioration in retail trade and manufacturing. This set of data should keep the MPC on the course to an interest rate cut at the May meeting, according to us by 50bp.

March CPI inflation in Poland printed 4.9% y/y, unchanged from January and February. Monthly price growth was revised up to 0.2% m/m from 0.1% m/m shown in the preliminary reading. We estimate core inflation excluding energy prices at 3.6% y/y - slightly higher than after the preliminary reading. Services prices slowed to 6.4% y/y from 6.6% y/y and goods prices accelerated to 4.4% y/y from 4.3% y/y.
We expect CPI growth to slow to 4.2-4.3% y/y in April. Another significant fall in inflation is very likely in July. By the end of the year, CPI inflation should be close to 3.5% y/y, in our view. Such an inflation trajectory supports an interest rate cut, which we believe will take place as early as May, given the recent dovish turn in the MPC members’ rhetoric.
According to a new publication by GUS, the rate of growth of services output was at 7.7% y/y, above the 4.1% y/y in December and averaging just under 4% y/y for the whole of 2024.