Inflation projection – June 2009 · 2014-09-24 · 13 Agricultural commodity price index * (incomparable †) •Global index of agricultural commodity prices consists of prices

1

2

Inflation projection – June 2009

I PROJECTION

II CHANGES IN THE PROJECTION

III UNCERTAINTY

-2

-1

0

1

2

3

4

5

6

06q1 06q3 07q1 07q3 08q1 08q3 09q1 09q3 10q1 10q3 11q1 11q4

percent

-2

-1

0

1

2

3

4

5

6

3

Construction of fan chart

• Uncertainty of inflation and GDP projection is estimated on the basis of past forecasting errors from the ECMOD/NECMOD model and on the basis of risk assessment of forecasts of selected exogenous variables.

30% 60% 90%

5 intervals*

-2

-1

0

1

2

3

4

5

6

7

8

05q1 05q3 06q1 06q3 07q1 07q3 08q1 08q3 09q1 09q3 10q1 10q4

per cent

-2

-1

0

1

2

3

4

5

6

7

8Inflation target with the tolerance interval of deviations from the target

central path

past inflation

*Intervals have been chosen to ensure that the probability of inflation running below the lower limit of the tolerance interval equals the probability of inflation running above the upper limit of the tolerance range.

I PROJECTION


III UNCERTAINTY

4

June projection in comparison to February projection:

CPI inflation

I PROJECTION


III UNCERTAINTY

-4

-3

-2

-1

0

1

2

3

4

5

6

06q1 06q3 07q1 07q3 08q1 08q3 09q1 09q3 10q1 10q3 11q1 11q4

percent

-4

-3

-2

-1

0

1

2

3

4

5

6

Feb 09 Jun 09

5

GDP projection – June 2009

I PROJECTION


III UNCERTAINTY

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

06q1 06q3 07q1 07q3 08q1 08q3 09q1 09q3 10q1 10q3 11q1 11q4

percent

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

6

I PROJECTION


III UNCERTAINTY

June projection in comparison to February projection:

GDP

-2

-1

0

1

2

3

4

5

6

7

8

06q1 06q3 07q1 07q3 08q1 08q3 09q1 09q3 10q1 10q3 11q1 11q4

percent

-2

-1

0

1

2

3

4

5

6

7

8

Feb 09 Jun 09

7

CENTRAL

PROJECTION

CENTRAL

PROJECTION

I PROJECTION

a) Assumptions

b) Starting point

c) Projection for 2009-2011


III UNCERTAINTY

8

Assumptions

I PROJECTION

a) Assumptions

b) Starting point



III UNCERTAINTY• Growth abroad

• Price growth abroad

• Interest rates abroad

• Energy commodity price index

• Agricultural commodity price index

9

Growth abroad(markedly lower till 2011 Q1)

I PROJECTION

a) Assumptions

b) Starting point



III UNCERTAINTY

In NECMOD model, the foreign sector is represented by three economies (with weights, respectively):

• euro area (87.8%)• United Kindgom (7.2%)• United States (5.0%)

External GDP (y-o-y) (%)

-6

-4

-2

0

2

4

02Q

1

03Q

1

04Q

1

05Q

1

06Q

1

07Q

1

08Q

1

09Q

1

10Q

1

11Q

1

11Q

4

Feb 09 Jun 09

10

Price growth abroad(lower between 2009 Q4 and 2010 Q3)

I PROJECTION

a) Assumptions

b) Starting point



III UNCERTAINTY

External value added deflator (y-o-y) (%)

0.5

1.0

1.5

2.0

2.5

3.0

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

11

Interest rates abroad(lower)

I PROJECTION

a) Assumptions

b) Starting point



III UNCERTAINTY

External 3M interest rate

0

1

2

3

4

5

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

12

Energy commodity price index*(lower in the short horizon)

I PROJECTION

a) Assumptions

b) Starting point



III UNCERTAINTY

* Global index of energy prices includes prices of coal, crude oil and natural gas.

Energy commodity price index

0.0

0.4

0.8

1.2

1.6

2.0

2.4

2.8

02Q

1

03Q

1

04Q

1

05Q

1

06Q

1

07Q

1

08Q

1

09Q

1

10Q

1

11Q

1

11Q

4

Feb 09 Jun 09 Jun 09 (method. Feb 09)

13

Agricultural commodity price index *(incomparable†)

•Global index of agricultural commodity prices consists of prices of wheat, pork, beef, poultry, fish, seed oil, sugar, oranges, bananas and index of beverages.

† Index weights represent the structure of consumer spending (CPI basket). – June projection consistent with 2009 structure, February projection consistent with 2008 structure.

I PROJECTION


III UNCERTAINTY

a) Assumptions

b) Starting point


Agricultural commodity price index

0.6

0.8

1.0

1.2

1.4

02Q

1

03Q

1

04Q

1

05Q

1

06Q

1

07Q

1

08Q

1

09Q

1

10Q

1

11Q

1

11Q

4

Feb 09 Jun 09 Jun 09 (method Feb 09)

14

Starting point

of June projection compared to February projection• GDP

• Labour market

• Inflation

I PROJECTION

a) Assumptions

b) Starting point



III UNCERTAINTY

• GDP and its components

• Labour market

• Inflation

15

GDP and its components – starting point*

09Q1

(0.8)

(2.9)

(5.1)

(-0.8)

(0.0)

(4.1)

(1.0)

(1.9)

0.8

-11.1

-10.2

-0.5

3.0

3.2

0.9

1.6

IE estimate(22.05)

(-0,2)

(1,9)

(1,6)

(0,3)

(1,0)

(4,4)

(3,0)

(2,9)

-0,7

1,0

-0,7

4,6

14,1

5,3

3,5

2,9

08Q4

1.8

-17.6

-14.6

1.2

6.1

3.3

-1.0

0.8

GUS† estimate(29.05)

Contribution of net exports(percentage points)

Imports(y-o-y) (%)

Exports(y-o-y) (%)

Gross fixed capital formation(y-o-y) (%)

Public consumption(y-o-y) (%)

Individual consumption(y-o-y) (%)

Domestic demand(y-o-y) (%)

GDP(y-o-y) (%)

• GDP

• Labour market

• Inflation

I PROJECTION

a) Assumptions

b) Starting point



III UNCERTAINTY

* Values from the February 2009 projection are given in brackets. Indicators whose value is higher than in February projection are marked in green colourwhereas indicators whose value is lower than in February projection are marked in red colour.

† Central Statistical Office

16

Labour market – starting point*

(-0.9)-2.1(- 1.6)-2.3Population(y-o-y) (%)†

(54.5)54.7(54.3)54.4Participation rate(%)

(8.9)7.9(7.6)6.9LFS unemployment rate(%)

(-1.0)-0.4(0.6)0.9Non-agricultural employment(y-o-y) (%) †

(-1.1)-0.7(0.0)0.5LFS employment(y-o-y) (%) †

(6.5)7.2(8.4)7.7Wages(y-o-y) (%)

(2.8)2.3(2.9)2.1Non-agricultural labour productivity(y-o-y)(%)†

(3.0)2.5(3.4)2.5Labour productivity(y-o-y) (%) †

(3.7)4.2(3.4)5.4Non-agricultural ULC(y-o-y) (%) †

(3.6)3.9(2.9)4.9ULC (y-o-y) (%)†

09Q108Q4

• GDP

• Labour market

• Inflation

I PROJECTION

a) Assumptions

b) Starting point



III UNCERTAINTY


† Based on LFS adjusted data

17

Inflation – starting point*

(5.6)6.0(7.8)7.8Energy price inflation(y-o-y) (%)

(2.4)3.8(3.4)3.4Food price inflation(y-o-y) (%)

(3.3)2.3(2.9)2.9Core inflation(y-o-y) (%)

(3.4)3.3(3.8)3.8CPI inflation(y-o-y) (%)

09Q108Q4

• GDP

• Labour market

• Inflation

I PROJECTION

a) Assumptions

b) Starting point



III UNCERTAINTY


18

Projectionfor the years 2009-2011

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• GDP and its components• Labour market• Exchange rate• Inflation

• Exchange rate

19

Investment outlays (lower in short horizon)

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• Exchange rate

Gross fixed capital formation (y-o-y) (%)

-10

-5

0

5

10

15

20

25

02

Q4

03

Q4

04

Q4

05

Q4

06

Q4

07

Q4

08

Q4

09

Q4

10

Q4

11

Q4

Feb 09 Jun 09

20

Fixed capital formation : decomposition

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• Exchange rate

-10

-5

0

5

10

15

08Q

1

08Q

2

08Q

3

08Q

4

09Q

1

09Q

2

09Q

3

09Q

4

10Q

1

10Q

2

10Q

3

10Q

4

11Q

1

11Q

2

11Q

3

11Q

4

GFCF enterprises GFCF public sector GFCF housing GFCF

21

Individual consumption (lower)

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• Exchange rate

Individual consumption (y-o-y) (%)

0

1

2

3

4

5

6

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

22

Contribution of net exports (higher in 2009)

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• Exchange rate

Contribution of net exports (percentage points)

-3

-2

-1

0

1

2

3

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

23

GDP(lower until 2011 Q2)

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• Exchange rate

GDP (y-o-y) (%)

-2

0

2

4

6

8

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

24

Labour market (lower growth rate of employment between 2009 Q3 and 2011 Q3,

lower unemployment rate, lower growth rate of wages between 2010 and mid-2011)

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• Exchange rate

Total employment (y-o-y) (%)

-5

-4

-3

-2

-1

0

1

2

3

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

Unemployment %

0

4

8

12

16

20

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

Gross wages (y-o-y) (%)

0

2

4

6

8

10

12

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

Labour productivity (y-o-y) (%)

0

2

4

6

8

10

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

25

ULC

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• Exchange rate

ULC (y-o-y) (%)

-6

-4

-2

0

2

4

6

8

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09ULC in non-agricultural sector (y-o-y) (%)

-6

-4

-2

0

2

4

6

8

10

02

Q4

03

Q4

04

Q4

05

Q4

06

Q4

07

Q4

08

Q4

09

Q4

10

Q4

11

Q4

Feb 09 Jun 09

26

Exchange rate

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• Exchange rate

EUR/PLN Exchange rate

3.0

3.5

4.0

4.5

5.0

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

27

Core inflation*(lower till the end of 2009)

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

* Core inflation does not include prices of food and non-alcoholic beverages and prices of energy carriers

• Exchange rate

Core inflation (%)

-1

0

1

2

3

4

5

6

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

28

Determinants of core inflation

I PROJECTION

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation


III UNCERTAINTY

• Exchange rate

Determinants of core inflation (y-o-y) (%)

-10

-8

-6

-4

-2

0

2

4

6

8

10

02Q

1

03Q

1

04Q

1

05Q

1

06Q

1

07Q

1

08Q

1

09Q

1

10Q

1

11Q

1

11Q

4

Rat

e of

gro

wth

(y-

o-y)

(%

)

import prices (excluding crude oil and natural gas) non-agricultural ULC

29

CPI inflation(higher in longer horizon)

I PROJECTION


III UNCERTAINTY

a) Assumptions

b) Starting point


• GDP

• Labour market

• Inflation

• Exchange rate

CPI inflation (%)

0

1

2

3

4

5

02Q

4

03Q

4

04Q

4

05Q

4

06Q

4

07Q

4

08Q

4

09Q

4

10Q

4

11Q

4

Feb 09 Jun 09

30

CHANGES IN THE

PROJECTION

CHANGES IN THE

PROJECTION

I PROJECTION


III UNCERTAINTY

a) With respect to theprevious projection

b) Expert adjustments

31

June projectionin comparison to

the February projection

I PROJECTION



III UNCERTAINTY


32

Change in the projection scenario

• Revision of assumptions about the world economy***

• Weaker zloty at the starting point**

• Lower core inflation at the starting point**

I PROJECTION



III UNCERTAINTY


Scale of adjustments: *** significant** medium * small

33

Changes in the model – impulses responses(CPI)

I PROJECTION



III UNCERTAINTY


-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

1 5 9 13 17 21 25 29 33 37 41 45 49

Monetary impuls - 2009 model Monetary impulse - 2008 model

Exchange rate impulse - 2009 model Exchange rate impulse - 2008 model

34

Changes in the model – impulses (GDP)

I PROJECTION



III UNCERTAINTY


-0.9

-0.8

-0.6

-0.5

-0.3

-0.2

0.0

0.2

0.3

0.5

0.6

1 5 9 13 17 21 25 29 33 37 41 45 49

Monetary impulse - 2009 model Monetary impulse - 2008 model

Exchange rate impulse - 2009 model Exchange rate impulse - 2008 model

35

Expert adjustments

I PROJECTION



III UNCERTAINTY


36

Main areas of expert adjustments

• Adjustments accounting for deterioration of credit conditions for the private sector

• Dampened transmission of the deepening of slowdownof the Polish economy to the real exchange rate, due to significant undervaluation of the Zloty at the turn of2008 and 2009

I PROJECTION



III UNCERTAINTY


37

Expert adjustments

Expert adjustments in the June forecasting round:

• Credit margin on mortgage loans and loansto enterprise sector***

• Investment outlays of private sector***• Real effective exchange rate**• Public consumption**• General Government sector**• Employed and wages**• Prices of energy carriers in Poland**

I PROJECTION



III UNCERTAINTY

Scale of adjustments: *** significant** medium * small


38

Joint impact of adjustments on inflation and GDP

I PROJECTION



III UNCERTAINTY


Deviation of CPI inflation pathfrom raw projection (p.p.)

-1.5

-1

-0.5

0

0.5

1

1.5

09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4

Deviation of GDP growth path from raw projection (p.p.)

-2

-1.5

-1

-0.5

0

0.5

09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4

39

UNCERTAINTY OF PROJECTIONUNCERTAINTY

OF PROJECTION

I PROJECTION


III UNCERTAINTY

40

Overview of probabilities for inflation

0.380.490.780.600.402011 Q2

0.390.490.810.640.422011 Q1

0.360.480.710.520.342011 Q4

0.370.490.740.550.372011 Q3

0.400.480.830.660.432010 Q4

0.410.500.830.640.422010 Q3

0.480.490.810.590.322010 Q2

0.550.480.710.410.162010 Q1

0.570.480.640.290.072009 Q4

0.650.480.670.210.032009 Q3

0.660.490.660.060.002009 Q2

in the range(1.5%; 3.5%)

below thecentral path

below 3.5%below 2.5%below1.5%

Probability of inflation running:I PROJECTION


III UNCERTAINTY

41

1. Situation in the General Government sector and fiscal policy

• Uncertainty about the scale and effectiveness of necessary changes to budget policy amid significant reduction of general government revenue and risk of increased cost of public debt financing in the conditions of risk aversion prevalent in financial markets

• Fiscal policy direction is a risk factor for:

• Domestic demand (negative – reduction of spending on intermediateconsumption, freezing of general government sector wages),

• Medium-term growth rate and labour market (negative – reduction ofpublic investments, increased fiscal burden),

• Inflation (decreasing – counter-action of current expenditures of the publicsector, increasing – rising of tax and quasi-tax burden)

I PROJECTION


III UNCERTAINTY

42

2. Labour market developments

• Scenario of labour market developments depends on Polish labourmarket flexibility.

• Additionally, it is subject to a number of multi-directional risksconnected with:

• structural policy of the government,

• effect exerted on labour market by planned or already introducedregulations (such as reductions of tax rates or changes concerning the level of minimum wages),

• actual scale of return migration,

• quality of labour resources and fitting of their structure to labour demandstructure.

3. Situation in financial sector

• Amid liquidity limitations and in view to grimmer outlook for development of banks and enterprises, the scale of transmission of thecentral bank’s reference rate cuts to cost of credit maybe incomplete.

I PROJECTION


III UNCERTAINTY

43

4. Global economic climate and its transmission into the state ofPolish economy

• Continuing global recession combined with lower flexibility and, consequently, lower resilience of Polish economy to shocks maysignificantly dampen the outlook for growth in projection period.

5. Exchange rate path and competitiveness of the economy

• Due to uncertainty connected with the path of real and nominaleconomic processes around the world, there is a significantuncertainty as to the future path of zloty exchange rate, terms-of-trade developments and contribution of net exports to growth.

• Additional factor is the still unresolved question of introducing thezloty into ERM II mechanism in the coming years

6. Risks to EU fund utilisation

• Deteriorated revenue situation of local governments coupled withtightened criteria for granting bank loans pose a threat to EU fund utilisation by public sector.

I PROJECTION


III UNCERTAINTY

44

7. Path of food and energy carrier prices

• Unknown scale of the impact of price declines in world marketson the reduction of price inflation rate in Poland

• Unknown pace and scope of deregulation of Polish energy market and possible incomplete transmission of falling world prices of coal intodomestic coal prices

8. Integration and institutional processes

• Risk connected with the scale in which new regulations on carbondioxide emissions and environment protection measures may affecteconomic activity

• Uncertainty as to the direction of EU policies in termsof tradeexchange with countries outside the EU (possible rise of protectionisttendencies)

• Lack of final solutions concerning spatial development

9. Discussion of data released after 22 May 2009

• Rise in current prices of (and futures contracts for) the majority ofenergy commodities

• Significant rising tendency on the majority of food markets,

• Preliminary GUS (Polish CSO) estimate of GDP in 2009 Q1.

I PROJECTION


III UNCERTAINTY

45

Uncertainty factors – summary

Having considered the above discussed uncertaintyfactors, it is assessed that the risk of inflation runningabove the central pathprevails throughout the projectionhorizon.

As regards growth, extra-projection risk factors point to some probability of economic slowdown in Polandproving longer than it was accounted for in theprojection.

I PROJECTION


III UNCERTAINTY

Documents

Inflation projection – June 2009 · 2014-09-24 · 13 Agricultural commodity price index * (incomparable †) •Global index of agricultural commodity prices consists of prices