And experts from the Bureau of Information and Economic Courses (BIEC) note that “indicators of inflation expectations for consumers and managers of industrial enterprises have been decreasing for several months, although the pace of their decline has been limited in the past two months,” they published the latest reading of the future inflation index.
You can see that WPI is still going down, but at an increasingly slower pace, which could mean that The rate of inflation will also decrease more slowly. This would not only be good news from a buying perspective, but also for example Borrowers who are waiting for single-digit inflation and the start of a cycle of interest rate cuts.
The rate of inflation in the future is declining, but the dynamics has slowed down lately.
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According to the BIEC report, For the first time since February 2022, the share of consumers surveyed who expect further price increases has fallen below 80%. (78.9 percent in July 2023)with the simultaneous contraction of the proportion of people who expect prices to increase at the current rate or faster than the current rate in favor of the group of respondents who believe that prices will fall or at least not rise in the coming months.
The advantage of entrepreneurs who intend to raise prices over those who plan to lower them has also been greatly reduced. It is currently about 5 percentage points. compared to over 26 a year ago. The tendency to lower prices prevails among large and medium-sized companies. In terms of industries, the biggest price cuts can be expected in the oil processing industry (where prices have so far increased by about 30% over the year), in the wood and paper industries.
Who is most willing to raise prices?
The desire to raise prices is often expressed by representatives of clothing companies and food manufacturers. Given the large share of food spending in the CPI basket (more than 27%), further increases in this category of goods could significantly slow down the inflation-lowering process.
We’ve seen a trend of reducing PPI growth for a year now, and average annual producer inflation is currently only around 1%, with about 4% in 2010. Price declines in manufacturing and about 30 percent. Increase in gas, electricity and water prices. Also in this case, the growth dynamics of prices for basic services, without which no business can function, may again become the impetus for a rebound in inflation.
As a result of the current decline in the volume of production, the utilization of production capacity in enterprises is decreasing. This is usually associated with lower operating costs, which reinforces entrepreneurs’ tendency to maintain prices at the current level or even to lower them.
These factors will make it difficult for inflation to fall
However, this process may be counteracted by a significant increase in the prices of services related to the operation of machinery and equipment. A clear increase in prices has been observed in companies providing repair, renewal and maintenance services for more than two years and is a result of the increased demand for these categories of services. The increasing demand for machinery repair and maintenance results from many years of investment arrears, which leads to an increase in the failure rate of owned equipment.
Other factors that may contribute to a significant slowdown in the rate of low inflation include commodity prices. The month of July and the first days of August drive up the prices of some commodities. This mainly concerns the prices of selected metals (such as copper) and food commodities (cereals, dairy products, and meat).
BIEC notes that food raw materials have become more expensive as a result of the blockade of Ukrainian grain transportation, but also due to the prevailing drought in countries that are prominent global producers (Canada, USA, India and China).
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