Economic comment

February data were mixed. Industrial output rose by 1.5% y/y following a decline and slightly outperforming market expectations, while seasonally adjusted output increased by 0.6% m/m. Growth was driven by mining (19.6% y/y) and energy (13.5% y/y), whereas manufacturing was almost flat (0.2% y/y). At the same time, construction activity disappointed sharply, with the decline deepening to -13.7% y/y. The labour market remained relatively stable: wages in the enterprise sector increased by 6.1% y/y, below expectations, while employment continued to fall at -0.8% y/y. PPI inflation rose to -2.3% y/y from -2.6% y/y. However, rising global energy commodity prices suggest the index could shift quickly towards the -1% to 0% y/y range in the coming months. Overall, the data do not appear to generate price pressures requiring a response from the MPC, instead allowing time to assess the implications of the Middle East conflict within the wait-and-see approach signalled in recent comments by Council members.

Inflation in Poland stood at 2.1% y/y in February, in line with the market consensus and 0.1 pp above our forecast. The change in CPI basket weights led to a revision of January inflation from 2.2% y/y to 2.1%, and from 0.6% m/m to 0.7%. Core inflation may have remained at its December level of 2.7% y/y in both January and February, with a chance of a slight decline in February.
CPI data for January and February should not have a material impact on the MPC’s decisions, inter alia due to uncertainty over the consequences of the war in Iran and the Council’s shift into a “wait-and-see” mode, already signalled by several of its members.

At today’s conference NBP governor Adam Glapiński confirmed that the MPC cut main interest rates again this week mainly because the recent data confirmed a further decline of inflation and the new NBP projection showed improvement of inflation outlook. The low inflation in future should be supported by: 1) deceleration of wage growth, 2) lack of economic overheating, 3) continued PPI decline, 4) experienced inflow of cheap goods from China. The main short-term risk is the situation in the Middle East, but – as it is impossible to predict its further development and consequences – the Council did not take this factor into account at the last meeting. (...)