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Core Inflation in April 2016

Date: 13-05-2016

NBP data: In April 2016, inflation net of food and energy prices stood at -0.4%, thus hitting an all-time low. The CPI index in the period under review stood at -1.1% (y/y) .

On 13 August 2016, Narodowy Bank Polski posted data on core inflation indices in April 2016. In year-on-year terms, inflation:

  • excluding administered (state-controlled) prices stood at -1.2%, as compared with1.0% in the previous month;
  • excluding the most volatile prices amounted to -0.3%, the same level as in the previous month;
  • net of food and energy prices amounted to -0.4%, as compared to -0.2% the month before
  • the so-called 15-percent trimmed mean (excluding the impact of 15% of the price basket characterised by the highest and lowest growth rates) was running at -0.5%, i.e. the same rate as in the two preceding periods of analysis.

In 2016, all the published measures of core inflation have been hovering at very low levels, in most cases close to their historic lows. At the same time, only the index of inflation excluding administered prices, having reached an all-time low of -2.1% y/y in February 2015, was on a steady upward trend between March and December 2015. That notwithstanding, it remains negative and considerably lower than the other measures of core inflation.

The April CPI (consumer inflation) index, announced by GUS on 12 May, stood at -1.1% y/y. This reading was in line with the flash GUS estimate.

The deepening of deflation was mainly due to the fall in the growth of prices of services – of 0.5 pp. to 0.4% y/y in April 2016 – primarily as a result of the fall in fees for telecommunications services and the prices of services in recreation and culture (lower fees of cable and satellite television operators). Although to a lesser degree, the lowering of inflation was also caused by the fall in annual price growth of food and non-alcoholic beverages (of 0.2 pp. to 0.6% y/y in April 2016).
The decline in the CPI index was accompanied by a fall in two of the four measures of core inflation published by NBP and stabilisation of the remaining two measures.

Narodowy Bank Polski computes the four core inflation indices on a monthly basis in order to highlight the nature of inflation developments in Poland. The CPI only shows average price movement across the whole broad basket of consumer goods. By calculating core inflation indices we can address price changes in various segments of the basket. Thus, sources of inflation can be identified more precisely, and future trends forecast more accurately. Furthermore, it can be determined to what degree the observed inflation trend is a lasting phenomenon, and to what extent it is driven, for example, by short-lived price hikes triggered by incidental factors.

The core inflation measure most frequently used by analysts is inflation net of food and energy prices. It captures movements in prices which are fairly responsive to the central bank's monetary policy. On the other hand, energy prices (including fuel prices) are not set domestically, but determined in the global markets, sometimes as a result of speculation. Also food prices are largely dependent on, among other things, the weather and conditions prevailing in the domestic and worldwide agricultural market.

See also: The April 2016 core inflation data »

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