Economic comment

Retail sales slowed to 2.2% y/y in June from 4.4% y/y in May, surprising to the downside (us: 4.6% y/y, market: 3.9% y/y). Detailed data show a rather disappointing performance of sales of durable goods. Yet the disappointment in June came after stronger than expected data for April-May. We generally remain sanguine about the consumption outlook, given a strong growth in real wages and improving consumer confidence, and we think that the underlying trend remains solid, which should be reflected in a steady consumption expansion, around 3% y/y this year.  

The July business tendency survey conducted by GUS does not change the current assessment of the economic situation. The overall economic climate in most industries remained similar to recent months, with a slight deterioration in retail trade and the accommodation and catering sectors, while improvement in transportation and storage.

Today's economic data was mixed. Industrial production surprised to the downside, falling by 0.1% y/y, while the market was expecting a 1.4% y/y increase and we thought a 0.9% y/y increase was more likely. Adjusted for seasonal effects, output growth was -0.5% m/m, which was the first decline since February. In contrast, the figures describing construction production and the labour market were better than expected. 
We assume that the Polish economy will continue to grow at 3%+ y/y, with some acceleration driven by an improvement in investment.

GUS confirmed the flash CPI inflation reading at 4.1% y/y in June, up from 4.0% y/y in May. The increase in the headline figure was primarily due to base effects, which pushed core inflation excluding food, energy, and fuel prices to 3.4% y/y from 3.3% y/y.
In our opinion, this was the last reading starting with a digit ‘four’, and July should see a significant decline in inflation, even below 3% y/y. We believe CPI inflation could remain below 3% y/y until the end of the year, which should support further interest rate cuts by the Monetary Policy Council. Core inflation, on the other hand, will decline slightly, but we forecast it will remain above 3% y/y until the end of the year.