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Forecast: Oil price in April will reach 110 USD, economists say. Fuel will still be expensive

FXMAG Team

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Rising fuel prices pushed inflation up to 3% y/y in March. In April a slight decline is expected, but its scale will depend on commodity price behaviour in the coming weeks. Considering the situation in the Middle East, we currently assess that even in a scenario of relatively rapid conflict de-escalation, the return of commodity prices to lower levels will be gradual.

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Forecast: Oil price in April will reach 110 dollars

As a result, the inflation path for the coming months moves upward, which will most likely prevent any interest rate cuts this year.

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Consumer price inflation (CPI) rose in March to 3.0% y/y from 2.1% in February, slightly below our forecast (3.1%) and market consensus (3.2%). As expected, the main factor driving up consumer prices in March was the jump in fuel prices – 15.4% m/m – slightly lower than the 18% m/m we anticipated. Food prices remained stable (we expected a slight drop of 0.2% m/m), while energy prices fell by 0.1% m/m, also in line with our assumptions.

According to our estimates, core inflation, i.e. CPI excluding food, energy and fuel, was at the 2.6–2.7% y/y range, slightly above the 2.5% recorded in February, but still very close to the inflation target.

In April CPI inflation will probably fall slightly, although the scale of this movement will largely depend on Brent oil price behaviour in the coming weeks. The government’s “CPN package”, which includes a reduction of indirect taxes on fuels, could potentially lower CPI by up to 0.8 percentage points ceteris paribus, i.e. assuming unchanged Brent prices in April relative to March. Today’s fuel prices at stations are already about 15% lower than a week ago. This effect can of course be limited if global oil prices rise.

Forecast: Oil price in April will reach 110 dollars

Our current forecast, assuming an average Brent price of 110$ in April and then a gradual decline towards 80$ by December, implies a reduction of CPI inflation to 2.6% y/y in April, followed by a rebound to around 3% y/y in mid‑year and an end‑of‑year level above 3.5% y/y. Such a scenario, in our view, will most likely exclude the possibility of further interest rate cuts by the National Bank of Poland this year.

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