As indicated by most recent GUS figures, in July the prices of goods and consumption services decreased by 0.7 percent year to year. – Although a couple of months ago one could expect deflation to diminish relatively quickly, now more and more factors seem to favour a further increase in prices. The weakening Chinese economy which is also embroiled in a currency war shows less and less demand for imported goods, which does not leave the raw fuel markets unaffected. Food price indexes and the pricing of contracts for crude oil supplies are in recession which suggests a sustained global deflation pressure. As a results of base effects, year to year deflation should not deepen – comments Łukasz Kozłowski, expert of Employers of Poland.
Despite the expectation for a lower deflation rate in July, the realization of recently formulated scenarios, according to which the year to year decrease of consumption prices would soon be a thing of the past and that by the end of the year we would be dealing with a gradually increasing inflation. The fact that the prices of raw materials and food on global markets changes the situation significantly.
What is more, in spite of the continuing economic upturn, base inflation excluding the prices of energy and food is nearing zero, Therefore, one cannot rule out that deflation continues to contribute to consumers’ and entrepreneurs’ being lower.
Despite the stronger impact of deflation factors on the value of year to year consumer price index will most likely continue closing in on zero, as one has to factor in base effects from last year, when we were dealing with relatively sudden price decrease.
These results should not have an impact on the decisions of the Monetary Policy Council. However, a continued decrease in consumer prices will eventually contribute to the postponement of interest rate increases.
Łukasz Kozłowski, economic expert of Employers of Poland