•  In yearly terms, Polish consumer prices headed up again - in July, CPI grew by 3.7% y/y (market: 3.6% y/y, our forecast: 3.8% y/y), compared to June's 3.5% y/y. In monthly terms, prices slowed down by 0.4% (market and our forecast: -0.5% m/m), compared to June's +0.2% m/m.
  • In yearly terms, the increase was mainly driven by rising prices of dwellings (6.8%, of which electricity, gas and fuels 9.8%) and of food and beverages (5.6%). Prices of clothing and transport contracted (-7.9% and -1.8%, respectively).
  • In monthly terms, prices of food, clothing and transport contracted by 1%, 1.7% and 0.9%, respectively. Prices of dwellings grew by 0.2% m/m, of which electricity, gas and fuels by 0.2% m/m.
  • The CB's target is 2.5% +/- 1% tolerance range. Inflation has been on a rising path in recent months, driven by increased administered prices and the weak zloty. By the end of this year, we expect it to return to the tolerance range. Given increased inflation, the volatile zloty and surprisingly good 2Q GDP data (+1.1% y/y), we do not expect the MPC to reduce rates further. This means that the bottom for the key rate has been reached at the current 3.5%. Unless something unexpected happens (surprisingly low 3Q growth, or an extremely weak zloty), we think that, next time, the rates will move up; this should happen late in the first half of 2010.