PLN: the inflation hype – Commerzbank

Poland’s recent inflation data was entirely evidence, and that the demanding stance maintained by NBP Governor Adam Glapinski (and his faction within the MPC) – presumably based on some concern about possible inflationary pressure in the future – is not had a fundamental basis, Commerzbank’s FX analyst. notes Tatha Ghose.

Glapinski faces parliamentary pressure

“Inflation rose briefly when anti-inflation policies of the past, such as VAT cuts on food, were discontinued. We see little chance of this factor producing a long-lasting burst of inflation. This is why I labeled Glapinski’s position as political. As a result, yesterday’s flash CPI reading for September supports our view on Polish inflation. Media headlines point out that inflation rose from 4.3% y/y to 4.9% y/y. But contrary to what the media has suggested, this does not pose pro-inflationary risks. Nothing could be further from the truth.”

“The annual rate of change is misleading. Recent price momentum – represented by the month-on-month change in the level of seasonally adjusted prices – was within the target of 0.1%m/l. This rate of change did indeed increase to almost 2%m/l immediately after the VAT rate hike, but that momentum has since disappeared. The broader pattern of Polish inflation falls close to the harmonious end of the regional even spectrum.

“So it doesn’t make sense for the Polish central bank to cut rates a year after similar central banks have done so. In our opinion, this artificial hawkish monetary position should not support the valuation of the zloty, as it represents the failure, the politicization of monetary policy. The currency position could turn dovish in the coming months as Glapinski faces parliamentary pressure to explain himself. This is a source of risk for the currency.”