Poland: Polish industrial output and PPI inflation

• Industrial output accelerated to 14.3% y/y in July, below our expectation (15.7% y/y), although not significantly so.
• The pace confirms that industry is still behind Poland’s economic growth. Looking at the CE4 region, the situation is very similar to that seen in the Czech Republic.
• On the cost side, wage growth is below the level of productivity growth (unit labor costs are declining). Therefore, the risk from wage pressures is limited, leaving companies to cope with FX appreciation and oil price growth.
• PPI inflation accelerated to 3.5% y/y in July, from 2.8% in the year-earlier period (we expected 3.0% y/y).
• The acceleration of both PPI and CPI inflation figures (with CPI up 0.3pp to 1.1% y/y in July; both CPI and PPI were above consensus estimates) indicates that inflation pressures are gradually increasing. Faster PPI growth compared to CPI means that companies’ mark-ups are under pressure. Therefore, a spillover into higher CPI can be expected.
• However, the still low level of CPI inflation means that we should not expect a hike this year. For next year, we expect one 25bp hike to 4.25%. The yield curve should react to the figures with a slight increase on the short end.

Erste Bank
http://global.treasury.erstebank.com
Source:ByDavid Navratil, fxstreet.com