Economic comment

In January, industrial production fell by 1.0% y/y, in line with our forecast and by less than the market had expected (-1.5% y/y). PPI inflation rebounded to -0.9% y/y, but the market had expected a rise to -0.4%. Construction output beat market expectations by far for the second month in a row with a result of 4.3% y/y, while the median forecast was negative. Such a result suggests that the investment cycle based on EU funds has started to gain momentum. Wages and employment data in the corporate sector for January are subject to distortions due to the annual sample change, so should be interpreted with caution. They showed a further deceleration in wage growth, to 9.2% y/y from December's 9.8% y/y, and a 0.9% y/y decline in employment. Of this set, from the point of view of inflationary pressures, the most significant is the further deceleration in wages, including in services, which – if continued - should open the way for interest rate cuts over time.

January CPI inflation surprised to the upside, reaching 5.3% y/y against our expectation of 5.1% y/y and the market consensus of 5.0% y/y. We estimate January core inflation at 4.0-4.1% y/y vs. 4.0% y/y in December. We expect CPI to peak in March, slightly above the January level, and then gradually decline to 4.0% y/y by the end of the year. Note that today's CPI reading has been calculated using basket weights for 2024 and will be revised in March. However, we assume that this revision will not result in a significant change in the reading. Today’s figures support NBP’s Adam Glapiński in his claim that it is too early to cut rates.

Unsurprisingly, the NBP governor Adam Glapiński repeated the hawkish message at his monthly conference, emphasizing that there are currently no reasons to change interest rates in Poland, or even think about it, as the current NBP forecast suggests CPI’s rebound at the end of this year and the monetary policy cannot allow inflation to get more persistent. (...) Overall, we do not change our view, expecting the first rate cut in July and then a gradual decrease of main interest rate, towards 4.5% by the end of 2025 and 3.5-4.0% in 2026.