Polish core inflation unlikely to reach target rate automatically

CEE inflation data for December surprised to the upside. But it was recognized that prices of volatile food and energy drove most of the headline surprise.  Polish core inflation data came in line with projections, accelerating 0.1 percent sequentially; this makes a fairly dovish reading as far as monetary policy is concerned, noted Commerzbank.

Meanwhile, the Czech central bank governor Jiri Rusnok stated that the Czech inflation is returning to normal. According to Rusnok, this was not a one-off; but he highlighted that CNB would adjust its monetary policy based only on trends and not on any one month’s reading. Therefore it is advisable to keep a close watch on seasonally adjusted price levels throughout CEE, particularly core prices.

At present, Poland has the lowest core inflation rate, whereas Hungary has the highest. Based on core price levels, Polish core inflation is running at about 0.7 percent annualized, while Hungarian core inflation is at 1.5 percent. At current trend rates, core inflation in neither country would automatically reach the target rate set by the respective central banks.

Still, year-on-year headline figures, which are observed on a large scale, might indicate spurts. This is why it would be a tricky time for the foreign exchange and bond markets.

“In our view, the main risk from confusing inflation data would be an early exit from its koruna cap by CNB”, added Commerzbank.