TOP MACRO THEME(S):
- Are inventories swinging the CAB?: The rapid deterioration of the current account balance (by 7pp of GDP) is unprecedented. We argue that apart from terms of trade shock it results from the unusually strong inventory cycle, that is likely to reverse.
WHAT ELSE CAUGHT OUR EYE:
- CPI inflation in August was 16.1% y/y vs. 15.6% y/y in July (in line with flash figure). The monthly data showed an acceleration in food prices, a strong increase in prices of energy carriers (especially solid fuel; we remind that gas and electricity prices are administratively regulated). Core inflation rose to 9.9% y/y from 9.3% y/y in July, with growths cumulated in a few categories. For the remainder of year we expect CPI inflation to be relatively stable, at around 16% y/y (with the biggest uncertainty surrounding fuel and energy prices). In early 2023, we expect inflation to rise above 17% y/y with the entry into force of higher energy tariffs and a higher minimum wage. By the end of 2023, CPI inflation should return to single-digit regions.
- The Government plans to freeze electricity prices for households for consumption up to 2,000 kWh/year. Price hikes (with still no indications about their potential level) would then impact only the consumption above this level (which by the way is close to the yearly consumption for an average household). Additionally, a mechanism to encourage energy saving will be introduced. The cost should be partly covered by the windfall taxes on energy companies (>0.5% GDP). The ministry in charge of energy plans to reform the market to stabilize and lower prices for end-users.
- The minimum wage in 2023 will be raised by 19.6% (the 2nd highest increase since 2005). The increase will be stepwise – to PLN 3490 since Jan 1 and PLN 3600 since Jul 1. In result the minimum wage will account for app. 50% of the average wage in the business economy. This is a GDP and fiscal position positive news, but might extend the time needed to bring the CPI inflation back to the target.
THE WEEK AHEAD:
- A series of data from the real economy for August (labour market, industrial output, retail sales) should confirm, that the economy is only in a slow-down, not a sudden-stop mode.
NUMBER OF THE WEEK:
- 51.6% GDP – public debt to GDP ratio decreased in 2q22 from 52.1 in 1q22.