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Afternoon analysis 18.11.2016

18 Nov 2016 15:29|Bartosz Grejner

PPI Inflation in Germany above expectations – data shows the biggest monthly increase in nearly 3 years. The growth in corporate sector wages in Poland slightly disappoints, the Polish currency still remains weak.

PPI Inflation on the highest level since 2013

PPI Inflation in Germany, measuring the level of inflations in goods sold by manufacturers, has been negative since July 2013 (on a year to year basis). It reached this year’s lows of -3.1% YoY in March and April. Since then it has been gradually increasing and closing to 0. Destatis reported today that it was -0.4% in October, in comparison to market expectations of -0.9% and -1.4% in September.

It was the highest level (or the lowest decrease) since the aforementioned July 2013, when there was a positive PPI inflation growth reported for the last time. It constituted a 0.7% gain on a monthly basis, which in turn was the biggest since January 2013. An increase in prices of sold non-durable consumption goods by 1.2% YoY contributed most to this gain. Prices of sold durable consumption goods and capital goods were also higher than in October last year, by 1.1% and 0.6% respectively.

By contrast, the biggest drop was in the energy prices (2.2%), which was in line with lower oil prices comparing to the same period a year ago. Excluding them, the PPI inflation grew 0.3% YoY and 0.1% MoM.

Zloty still under pressure

Since the middle of 2016 we have been observing increasing smaller growth in corporate sector wages in the Polish economy. It fell from 5.3% in June to 3.9% in September. The Central Statistical Office published today a report showing that this growth in wages was 3.6% in October (vs. market consensus of 4.3%). This is the lowest increase since March. CSO also showed that employment growth of 3.1% YoY in October was in line with expectations and only slightly below 3.2% a month earlier.

However, this had little effect on the zloty – it’s exchange rate is mostly dependent on the global sentiment and 3Q GDP growth rate below expectations. Yesterday’s dollar strengthening (due to comments from the chair of the Federal Reserve) caused zloty to significantly weaken to the dollar as well. The American currency cost the most since 14 years (4.20 zl).

Monday’s events

At 2.00 PM, the Polish Central Statistical Office (GUS) will publish October’s data regarding industrial production, PPI and retail sales. An increase in industrial production for September (3.2% YoY), appeared to be worse than expected (3.5% YoY). Moreover, this was definitely below the level for August (7.5%), which was the best result since November 2015.

The market assumes that industrial production increased by 1.1% in October. The data from the building sector will be crucial as well. This index has been decreasing for a long time. In September, it was at the level of 15.3% and estimates regarding October are at a slightly higher level (15.8%). The zloty is currently under significant supply pressure. This is why a negative reading will wear-off the zloty.

Poland’s retail sales growth was at the level of 5.6% YoY in August. This was the best result since March 2014. However, this index’s growth was at a slightly lower level in September (4.8% vs expected 6.1%). The market consensus assumes that this wear-off trend was continued in October and expects this index to be at the level of 4.1%.

Retail sales data is crucial, because it shows the condition of consumer expenses, which are a significant element of the Polish GDP. Previous data regarding the GDP growth in the third quarter (provided by GUS) was disappointing (2.5% vs 2.9%). Moreover, the data was revised down a few times. Weak retail sales data for the first month of the fourth quarter would be negative for the growth pace. This could also wear-off the zloty.

The PPI data in Year over Year interpretation was at a positive level in September (0.2%) for the first time since October 2012. The market expectations towards this index for October are at the level of 0.4%. A positive reading would confirm that there is an upper trend in PPI, as well as in CPI. This would be positive for the zloty. However, these results are still distant from inflation target (2.5%), which has been established by the Monetary Policy Council. The previous MPC announcement stated that the Council is not planning to raise interest rates before 2018, for the time being.


18 Nov 2016 15:29|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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