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Key information from the past week
1. Poland – Inflation
Statistics Poland reports that the level of inflation in May was in line with the flash reading at 2.5% y/y. In m/m terms, the rate of price growth was 0.1%, in line with the flash reading at 0.1% as well. In y/y terms, the strongest price increases were in the education and the restaurants and hotels categories. The growth of service prices reached 6.2% y/y (a decline in growth rate) and 0.1% m/m (a decline in growth rate), and commodity prices reached 1.2% y/y and 0.1 m/m, respectively.
Source: GUS. Own compilation.
Source: GUS. Own compilation.
2. Poland – Balance of Payments
According to preliminary data from the National Bank of Poland, the April balance of trade in goods was positive at PLN 868 million. In April 2023, it was positive as well, but significantly higher (PLN 1.9 billion). As a result, the period from April 2023 to April 2024 closed with a positive goods trade balance of PLN 25.5 billion. In 2023, the goods trade balance for the corresponding period was -58.6 billion. The current account for the last 12m closed with a positive balance of PLN 52.1 billion. In terms of portfolio investments, the balance of investments in equity instruments increased (PLN +711 million), while the balance of investments in debt instruments decreased (PLN -3.8 billion).
Source: NBP. Own compilation.
Source: NBP. Own compilation.
Source: NBP. Own compilation.
Source: NBP. Own compilation.
Source: NBP. Own compilation.
3. USA – Inflation
According to the Bureau of Labor Statistics, consumer price growth came in at an annual rate of 3.3% in May, 0.1 p.p. lower than expected. Month to month, prices did not change. The level of core inflation (excluding food and energy prices) was also 0.1 p.p. below expectations, at 3.4% y/y. When analysing CPI inflation by component, the negative contribution of goods (excluding energy) increased again. The contribution of energy prices increased, while the contribution of food prices was stable. The contribution of services was positive, but declined.
Source: BLS. Own compilation.
Source: BLS. Own compilation.
Source: BLS. Own compilation.
Source: BLS. Own compilation.
4. USA – Inflation: “Stickiness”
Readings of “sticky price” measures continue to indicate a significant anchoring of inflationary processes in the U.S. economy, although for the second month in a row there has been a downward momentum similar to the CPI dynamics. A look from the vantage point of the “Sticky CPI” is based on the assumption that some of the items that make up the consumer price index change values frequently, while others change at a slow pace. “Sticky” prices may not respond to changing market conditions as quickly as “flexible” prices. The Atlanta FED is examining whether these two sets of prices – rigid (“sticky”) and flexible ones – provide insights into different aspects of the inflation process. It turns out that “sticky” prices are more responsive to expectations of future inflation than prices that fluctuate frequently, while “flexible” prices react more strongly to economic conditions – such as an economic slump. Importantly, this “sticky”-price measure appears to include an inflation expectations component, which can be useful when trying to determine the direction of inflation.
Source: Atlanta FED. Own compilation.
5. The FED and interest rates
Following the CPI inflation data, the FOMC (Federal Open Market Committee) eased expectations for a quick interest rate cut. Although the median forecast for this year now points to only one cut, the pace of monetary easing remains unchanged from March. The Fed is still forecasting a benchmark rate in the range of 3% to 3.25% by the end of 2026. However, the FOMC’s assessment is not uniform: four members do not expect cuts this year, seven predict one cut, and the remaining eight favour two cuts. It is worth noting that the neutral rate was revised upward from 2.6% to 2.8% – a hawkish signal (i.e., in favour of maintaining a restrictive monetary policy). The overall assessment of the economic situation has not changed significantly since the previous meeting. Despite the uneven GDP numbers for the first quarter, the economy is growing at an annual rate of 2%, even with restrictive monetary policy. The labour market is currently “tight, but not overheated.” One exception is inflation: weak first-quarter data pushed up year-end estimates of core inflation by 0.2 percentage points, prompting a delay in planned monetary easing. The FOMC press release highlighted some progress – the only significant change from the May announcement, namely the upward revision of the forecast for the end of 2024, which implies an acceleration of inflation in the second half of the year. The revision of the forecast is a result of the previous conservative projection. Nevertheless, the FOMC still expects an improvement in monthly inflation readings. Other inflationary pressures can be found in services, especially in the housing sector. In reference to the strong labour market, although wage growth does not appear to be the main driver of the recent jumps in inflation, a further slowdown in the labour market is considered necessary to bring inflation back to 2%. Powell reiterated that the FOMC needs to see a series of good inflation readings before deciding on rate cuts. Ultimately, whether there will be one or two rate cuts this year matters much less than the overall direction of interest rate policy. The FOMC remains fully data-driven, but acknowledges that policy must stop being restrictive before it hurts the economy. This motivation underlies the declining path of interest rates, which may seem at odds with the macroeconomic forecast showing a steady rate of economic growth, close to the potential rate. Risks to financial stability are not highly rated by the FOMC, as banks are well capitalized and show no signs of high levels of risk. Powell also downplayed the importance of the neutral rate. He said it is a long-term, unmeasurable variable – a theoretical concept with almost no impact on short-term policy. This likely signals a belief that the federal funds rate will not return to the low levels seen before the COVID pandemic.
6. USA – Industrial Inflation (PPI)
The Final Demand PPI index rose 2.2% y/y in May, 0.3 p.p. below expectations. On a monthly basis, the index declined by 0.2% against an expected increase of 0.1%. The core PPI also rose by 2.3% y/y (against the expected 2.5%). The growth rate for March was revised from 2.4% y/y to 2.5% y/y.
7. Japan – GDP
According to the final data, the growth rate of the Japanese economy in Q1 of this year was -1.8% on an annualized basis, compared to the first reading of -2.0% y/y. A smaller decline in business spending (-0.4% vs. 0.7%) and an increase in inventories to 0.4% were responsible for the better growth rate compared to the first reading. On the other hand, the revision of negative net exports from -0.3% to -0.4% had a negative effect.
8. Japan – PPI
Japanese industrial price growth in May was 0.4 p.p. higher than forecasted, at 2.4% y/y. The rate of inflation in April was also revised upward from 0.9% to 1.1%.
9. China
China’s May CPI inflation rate was below expectations at 0.3% y/y. Industrial inflation was -1.4% y/y, compared to -2.5% recorded in April.
This week:
- Poland: core CPI, consumer sentiment, wages, PPI industrial production, money supply
- Eurozone: PPI, ZEW, consumer sentiment, preliminary PMIs
- USA: industry data, retail sales, leading index
- China: industry data, retail sales
