National Bank of Poland : Core Inflation in December

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Core Inflation in December

Date: 16-01-2014

NBP data: In December, inflation net of food and energy prices amounted to 1.0% y/y and was 0.1 pp lower than in November. The CPI index at the end of December was 0.7% up on the previous month.

On 16 January, Narodowy Bank Polski posted a release on the December core inflation levels. In year-on year terms, inflation:

• excluding administered (state-controlled) prices remained at 0.3%, the level recorded in the previous month;
• excluding the most volatile prices amounted to 1.4%, again the same level as in November;
• net of food and energy prices had dropped to 1.0%. from the 1.1% observed in November;
• the so-called trimmed mean (excluding the impact of 15% of the price basket characterised by the highest and lowest growth rates) was running at 0.5% for the third consecutive month.

The CPI December index, announced by GUS on 15 January, stood at 0.7% y/y, as against 0.6% seen in November.

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 index 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 this 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 net of food and energy prices. It captures movements in those 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 global agricultural market.