In May, the prices of consumer goods and services dropped by 1.0 percent compared to the same month last year – show tentative estimations made by GUS. – Yet again deflation exceeds expectations. There is still no price decrease in sight, although there are no indication that this is harmful for Polish economy either – comments Łukasz Kozłowski, expert of Employers of Poland.
The sustained negative trend in consumer prices is gaining scope and is no longer restricted to fuels and food. The prices of food and non-alcoholic beverages are have constantly increased since the beginning of the year and there are no indications that May has seen a reversal of this trend (data on the prices of particular groups of goods are not available yet). Widening deflation processes are indicated a.o. by a negative base inflation value: -0.4 percent year to year in April.
However, one should not link the lower GDP growth – 3.0 percent year to year in the I quarter, according to GUS figures – with the detrimental impact of deflation on Polish economy: the dynamics of private consumption in this period increased. Therefore, lower prices do not have an impact on decreased consumption in households, or other factors trump the impact of deflation.
Despite surprisingly deep deflation, cuts in interest rates in the foreseeable future seem unlikely. The stance of the Monetary Policy Council could possibly by changed by the prognosis for inflation in March.
Łukasz Kozłowski, economic expert of Employers of Poland