Economic comment

Retail sales are maintaining their upward trend, and we expect this to continue in the coming months. In August, the stats office reported a 3.1% y/y increase in sales, which is only slightly below expectations (3.3% y/y) and below the 4.8% y/y recorded in July. Seasonally adjusted, retail sales rose by a solid 0.7% month-on-month in August. The September business climate survey indicates an improvement in business sentiment across most sectors, which bodes well for economic growth in the third quarter.

August data from the Polish economy turned out to be weaker than expected in most cases. While the slowdown in production growth was in line with our forecast and resulted, among other things, from fewer working days, the slump in construction and assembly production raises many questions about the reasons for this situation. Average wages in the enterprise sector slowed to 7.1% y/y in August from 7.6% in July, which is below expectations, while employment in the enterprise sector fell by 0.8% y/y, in line with expectations. 
From the point of view of further decisions by the Monetary Policy Council, today's data reduce the risks of persistent inflationary pressure in the economy, thus providing more scope for interest rate cuts. However, we believe that the decisive factor before the next MPC meeting will be the September inflation reading, which will be released on the last day of the month.

In August, CPI inflation stood at 2.9% y/y, which is 0.1 pp above the preliminary estimate of 2.8%. According to our calculations, core inflation excluding food and energy probably slowed to 3.2% y/y from 3.3% y/y in July. We expect CPI inflation to rise to around 3.2% y/y in September and remain in the range of 3.2-3.4% y/y until the end of the year, which will be related to increases in heating prices and other household maintenance costs. In our view, August inflation data will not discourage the Monetary Policy Council from further interest rate cuts, and the probable September reading exceeding 3% y/y may act in favour of a decision to postpone the next rate cut until November, when the updated NBP projection will be available.