Inflation may soon start to rise again

On Thursday, the Central Statistical Office will present inflation data for January. Inflation will fall below 3% by March. However, we can expect it to rebound later. Also in the US, the risk of a return of inflation is underestimated and is growing. Today, American inflation will fall below 3%.

On Thursday, we will know the inflation data for January

The most likely scenario is a drop in inflation to 4,3-4,5%, another drop in February and inflation reaching around 3% in March. y/y. There is even a probability that inflation will drop to 2,5% in March. y/y, but I think this reading will be closer to 3%. y/y. However, it should be remembered that the first inflation readings of the year are subject to risk related to changes in the NBP inflation basket. Before the inflation rate is announced in January, this basket is updated to match the expenses of the average Pole as closely as possible. In the following months, inflation will stop falling and may increase significantly. These moves will depend on government decisions regarding VAT on food and energy prices. Only these two elements can increase the inflation reading by up to 4,5 percentage points. In such a scenario, at the end of 2024, inflation may amount to approximately 6,5-7,5 percent. Concerns about rising inflation are not unique to Poland. However, a Polish inflation rebound seems virtually certain.

Concerns about rising inflation also appear in the USA

Inflation in January, which we will know today, will most likely fall below 3%, which will happen for the first time in 33 months. This is the result of falling prices of gasoline, food and used cars. However, the risk of a return to higher inflation in the US is underestimated and growing. The U.S. job market is surprisingly healthy and economic growth is strong. Data GDPNow for the first quarter (this indicator examines the current GDP results in the USA) indicate an annual growth of 3,4%. At the same time, the yield of 10-year bonds increased, amid hopes for a reduction in interest rates Fed have been pushed back and the dollar is the best-performing major currency this year. Stocks welcomed lower recession risks and better earnings prospects. However, they may underestimate the risk of an inflation surprise. Prepared by eToro* an index of 13 leading and current inflation indicators shows that the price decline has stopped. The rate is currently at 40%. lower than the peak levels of 2022 (when inflation was the highest), but increased by 4%. last month. With large increases in forward-looking employment rates and PMI prices, along with a strengthening housing market. This could mean a return to rising inflation after another decline in February.

What about further rate cuts in Poland?

The level of inflation remains crucial for decisions on interest rate cuts. In Poland, the statement after the last meeting of the Monetary Policy Council and the president NBP Adam Glapiński indicate that there may be no interest rate cuts until the end of the year. This is one of the reasons for the recent strengthening of the zloty. In such a situation, rates in Poland would remain at a higher level with expected falling rates in the US and the euro zone.

*We track the US labor market (ISM employment, JOLTS), housing market (Zillow rent, NAHB index), commodities (used cars, ISM industrial prices), commodities (gasoline, broad commodities), supply chains (GSCP index, container rates) and expectations (Michigan survey, Break-evens).

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.