Afternoon analysis 11.07.2017

The growth rate of consumer prices in Poland in June was as expected and with limited impact on the zloty. The Swiss franc was under pressure because of a stronger euro and better perspective for the eurozone.

Inflation as expected

Today, the Central Statistical Office (GUS) presented the final consumer inflation (CPI) data for June in Poland. The pace of price growth fell both in line with expectations and preliminary readings to 1.5% YOY. The decline was mainly due to a fall in energy prices, which increased only 1.8% in June compared to the same month last year.

Food prices increased not only when compared to June 2016 (by 3.9%) but also compared to this May (by 0.1%). The breakdown of June’s inflation confirms that the recent fall in inflation in Poland and other European countries (or the United States) was mainly due to the energy commodities’ prices and is likely to be temporary.

However, the publication of the GUS had limited impact on the zloty, which was slightly weaker today. Its value in relation to the major currencies moved in the range of fluctuations observed in the recent days. For now, there are no arguments that could support a more permanent weakening of the Polish currency. Its slightly weaker condition today could also be caused by declines in the European stock exchanges, although they were relatively small.

Quiet in the market

Trading in the foreign exchange market was relatively calm today. The fluctuations of the main currencies were limited, although the Swiss franc stood out as it was significantly losing value. Its value to the euro has fallen to the lowest level for just over a year and to the dollar in two weeks. This is a result of the generally better condition of the eurozone, better forecasts of economic growth and less risk of its collapsing.

It also positively translates in relation with the franc to the zloty - the CHF/PLN pair fell near the lowest level since the beginning of June (approx. 3.84), despite the previously mentioned minimal weakening of the Polish currency. Further improvement in the euro area may keep the Swiss currency under pressure.

Tomorrow, May’s industrial output data in the euro area will be disclosed, which is expected to grow by 3.6% YOY according to market expectations. Strong growth was indicated by the "soft data" of PMIs, although the previous months have shown that they overestimated actual production. If, however, according to Eurostat it grows in the area of ​​3.6% or above, the euro may continue to appreciate and the franc could further lose value.

Tomorrow's preview

At 10.30 a.m., the National Statistics Office (ONS) will publish data from the British labour market. We will learn about the unemployment rate in May, change in the claimant count in June and the average wage level in May. The main focus will be on the latter - the pace of average wages’ growth in recent months has gradually declined, in opposition to rising inflation.

As a result, the real wages of Brits are getting lower and lower. Their further reduction may limit consumer spending in the economy which could negatively impact on the GDP growth rate in Great Britain. Hence, another decline in average wages may put pressure on the pound. The market consensus currently assumes a decline in its growth rate from 2.1% YOY in April to 1.8% YOY in May.

The National Bank of Poland (NBP) will announce at 2 p.m. June’s core inflation (excluding energy and food prices) in the Polish economy. It fell in May to 0.8% YOY (from 0.9% in April), with the main inflation dropping to 1.9% (from 2% in April). In June, the main consumer inflation index fell to 1.5% YOY. This was mainly due to the rapid decline in oil prices, so June’s base rate should probably be at the same level as May’s. However, if it turns out to be lower than 0.8% YOY, the zloty can be under pressure as the probability of tightening the monetary policy would be slightly lower.