Inflation will rise further. Can we forget the lower premiums? [WYKRES TYGODNIA]

Let's start with the good ones. It is clear that annual inflation rates are on a downward trend. According to preliminary estimates by economists, CPI (consumer prices) inflation in December fell to 6.1%. On an annual basis, this is the slowest pace since fall 2021.

This headline indicator follows, with some delay, so-called core inflation, excluding food and energy prices (estimated at 6.9% after December) – This is what the Monetary Policy Council is now supposed to focus on. According to the latest statements of NBP President Adam Glabinski.

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The other good news is that in March-April, inflation may fall so low that it reaches the so-called official NBP target (2.5% +/- 1%). Such a scenario, assumed by a growing group of economists (Crédit Agricole experts went further, predicting 2.4%), would have been unthinkable just ten months or so ago – and that is undoubtedly a big positive.

However, this is where the positive news ends. An increasingly common scenario is a clear rebound in inflation after the spring lows. This will be affected by a number of factors, from wage increases in the economy that drive consumer demand (including announced budget increases and minimum wage increases), through to the government's potential withdrawal from costly anti-corruption measures. Inflation shields (unfreeze energy prices), ending with higher social transfers (800 plus). All of this could lead to a return of inflation later in the year.

This is what this vision is supposed to justify The MPC's apparent reluctance to cut interest rates radically. Inflation falls below the so-called reference rate of 5.75%. It's supposed to be temporary. Economists differ on whether the MPC will limit itself to a few modest cuts (perhaps the first in March) or perhaps – as BICA expects – not cut interest rates at all this year (which may also include political considerations). ). . .

What might radically change this “consensus” view of this year being one characterized by the return of inflation and the absence of radical interest rate cuts? For example, a possible global recession. The eurozone economy is already experiencing a strong slowdown, just as in China, and among the most important pillars of the global economy, the US economy is still holding strong. But for now, the fate of this “anti-inflationary” recession remains highly uncertain.

From the investors' point of view, maintaining relatively high interest rates is, at the moment, good news, for example for various bonds (Treasury and Corporate), whose interest rate depends on the WIBOR rate, which in turn depends on a modified NBP. The profitability of this type of instrument, included in the portfolios of various debt funds, remains much higher than interest rates on bank deposits.

Thomas Hondo, Chief Economist at Quercus TFI