As shown by preliminary GUS assessments, in March the price of consumption goods and services deceased by 0.9 percent year to year. – Deflation continues to surprise negatively, as yet again it proves to be higher than expected. This is caused by lower prices, not only of fuel, but also by lower prices of other goods. In spite of this, our economy has not suffered much yet – comments Łukasz Kozłowski, expert of Employers of Poland.
Despite the fact that one the main drivers of deflation in previous quarters – falling food prices – has started to diminish, continued year to year drop in fuel prices, as well as the fact that other goods are also lower (as evidenced by a negative annual base inflation index after the elimination of energy and food prices) means that we are still dealing with sizeable deflation – nearly 1 percent year to year. Changes in the inflation basked used by GUS also contributed to this.
Although deflation is traditionally associated with a downturn, thus far it has not caused major losses in Polish economy. Moreover, cheaper energy sources even propel its growth to some extent, exerting positive influence on demand through lower production costs. Employees do not have much to complain about either – if the relatively stable nominal wage growth is maintained, the real purchasing power of their income would increase even more.
The large scale of deflation and yet another lowering of the NBP’s inflation projections can be treated as a premise for lowering interests rates by the Monetary Policy Council, particularly given that most of its new members are monetary doves rather than hawks.
Łukasz Kozłowski, economic expert of Employers of Poland