Economic comment

June CPI climbed to 15.6% y/y from 13.9%, roughly in line with expectations. We estimate core inflation at 9.3-9.4% y/y. We think that CPI inflation is close to its peak, but much depends on how GUS treats the new price policies about fuel and coal. Meanwhile, core inflation is likely to climb further. The June CPI reading supports a rate hike by 75bp in July, in our view. The rate hike may be delivered in spite of the poor PMI print (a drop much below forecasts). The indicator is suggesting a very strong downturn in the economic activity and we are indeed expecting the economic growth to slow down strongly in 2H22

Retail sales advanced by 8.2% y/y in May, slightly below expectations. The decline from April’s 19.0% y/y is mainly caused by the closures and reopening of shopping malls during the pandemic. Fuel sales seems to be advancing markedly slower than usually, which can be a result of very high fuel prices due to the war in Ukraine. We think that retail sales will be slightly slowing down in the later months of the year.  In May Polish construction output growth increased from 9.3% y/y to 13.0% y/y while we and the market consensus had expected the surprising April weakness to hold. Despite this we continue to forecast slowdown in the sector amid supply and labour constraints and reduced demand for housing.

In May Polish industrial output rose by 15.0% y/y, but was clearly below expectations, confirming that the sector entered a slowdown period. May readings of employment and wages were also worse than had been expected. We think the labour market statistics were affected by some Ukrainians returning home while others found jobs in Poland. PPI inflation reached 24.7% y/y in May and in our view is already close to the peak. Today’s set of data shows that the economy is starting to slow down.