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Core Inflation in July 2016

Date: 16-08-2016

NBP data: In July 2016, inflation net of food and energy prices stood at -0.4%. In the analysed period the CPI amounted to -0.9% (y/y).

On 16 August 2016, Narodowy Bank Polski posted data on core inflation indices in July 2016. In year-on-year terms, inflation:

  • excluding administered (state-controlled) prices stood at -0.9%, as compared with -0.7% in the previous month;
  • excluding the most volatile prices amounted to -0.1%, the same level as a month before;
  • excluding food and energy prices amounted to -0.4%, as compared with -0.2% a 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 -0.3%, the same level as a month before.

In 2016, all the published measures of core inflation have been hovering at very low levels, in most cases close to their historic 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 July 2016 CPI (consumer price index), announced by the Central Statistical Office of Poland (GUS) on 12 August, stood at -0.9% (y/y). This reading was in line with the GUS flash estimate of 29 July 2016. Factors aggravating deflation included, above all, a decrease in the growth of the prices of fuels – by 2.1 percentage points to -11.1% y/y (falling oil prices in the global markets) and prices of non-food products – by 0.4 percentage points to -1.4% y/y (mainly declining prices of medical and pharmaceutical products). Price growth relating to food and non-alcoholic beverages increased in July 2016 to 1.0% y/y (against 0.9% y/y in June).

The CPI decrease was accompanied by a fall in two of the four measures of core inflation published by NBP, as the other two remained unchanged at the previous month’s level.

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 July 2016 core inflation data »

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