Polish July CPI swings into first deflation in 32 years
August 14, 2014
Polish consumer price inflation plunged into negative territory in July for the first time since 1982, driven by a fall in the cost of food, clothing and fuel, the Central Statistics Office GUS said Wednesday.
Poland’s consumer-price index edged down to -0.2% year on year in July, reversing its 0.3% annual increase in June, in line with the consensus forecast for a 0.2% annual decline, GUS said.
GUS said it was the first case of annual deflation in 32 years since GUS started to calculate inflation figures.
Food prices declined 1.7% in July compared with a year earlier, fuel prices were 1.0% lower and clothing prices dropped 4.9%.
“The negative inflation index is practically entirely driven by positive supply shocks because we have new elements in the form of the embargo”, BZ WBK Chief Economist Maciej Reluga said in a comment to July CPI data, adding that foods prices may continue to fall further.
According to the Economy Ministry, the food embargo introduced by Russia creates a threat that deflation in y/y terms will hold for a longer time than was previously assumed.
The deepest price cuts concern fruit and vegetables as their exports made more than 50% of the total food exports to Russia. Fruit and vegetable prices are likely to decline even by 10% year on year and by even 20% in the case of apples, Credit Agricole economist Jakub Borowski said.
Economy Ministry analysts said that Poland's CPI will edge down to 0.3% y/y in August.
"In August 2014, the price decline should deepen and reach 0.3%, mostly on account of a further decline in food prices," they said.
After analyzing the situation, the ministry may adjust budget plan for 2015 budget bill, the ministry said. The ministry is currently working on the budget based on different variants of macroeconomic situation, the ministry added.
The reading may also bolster arguments for a rate cut in coming months as Poland’s central bank has kept its interest rate on hold at 2.50% since July 2013.