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Core Inflation in May 2016

Date: 14-06-2016

NBP data: In May 2016, inflation net of food and energy prices stood at -0.4% (y/y), thus remaining at its historically low level. The CPI amounted to -0.9% (y/y) in that month.

On 14 June 2016, Narodowy Bank Polski posted data on May core inflation indices. In year-on year terms, inflation:

  • excluding administered (state-controlled) prices stood at -1.0%, as compared with -1.2% in the previous month;
  • excluding the most volatile prices amounted to -0.2%, compared to -0.3% in the previous month;
  • excluding food and energy prices amounted to -0.4%, the same level as the month before;
  • the so-called 15% trimmed mean (excluding the impact of 15% of the basket of prices characterised by the highest and lowest growth rates) was -0.4%, compared to -0.5% a month before.

Since the beginning of 2016, all the published measures of core inflation have been hovering at a very low level, and in most cases – close to their historical lows. 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. Yet it remains negative and considerably lower than the other measures of core inflation.

The May 2016 CPI (consumer price index), announced by the Central Statistical Office of Poland (GUS) on 13 June, stood at -0.9% (y/y). This reading was only slightly higher than the GUS flash estimate.

Factors mitigating deflationary trends included, above all, a rise in the (negative) growth in the prices of fuels for private means of transport – of 2.5 percentage points, to -9.9% y/y (rising oil prices drove up fuel prices by 4.2% m/m in May). Another factor contributing, albeit to a lesser extent, to price growth, was the pick-up in the annual growth in the prices of food and non-alcoholic beverages (of 0.2 percentage points, to 0.8% y/y in May 2016). No significant price movements were recorded in the remaining main categories comprised by the CPI. Price changes relating to both services and non-food products in May changed at the rates observed in the previous month (of 0.4% y/y and -1.1% y/y, respectively).

The increase in the CPI was accompanied by a rise in three of the four measures of core inflation published by NBP, and a stabilisation in the fourth one.

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 by e.g. short-lived price hikes triggered by incidental factors.

The core inflation measure most frequently used by analysts is inflation excluding 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 May 2016 core inflation data »

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