Poland's real interest rates turn negative as inflation surges in January

By bne IntelliNews February 13, 2017

Poland's consumer price index grew 1.8% y/y in January, more than doubling its rate compared to December, statistics office GUS announced on February 13.

With Polish interest rates sitting at 1.5%, the rise of the CPI pushes real interest rates into negative territory. However, the Monetary Policy Council (MPC) has guided that it is not likely to consider a hike for the benchmark, insisting that the swift rise in inflation that kicked off in December is a temporary phenomenon.

The MPC said earlier in February that it expects inflation to stabilize in the coming quarters, and that the risk of inflation sitting above its 2.5% target remains low. The movement of the CPI is based on external factors, the MPC has long noted, both during the long phase of deflation over the past three years or so and now as the index recovers rapidly.

Prices of food and fuel drove the growth in January, GUS data shows. Food became 2.8% more expensive in annual terms, while prices in transport gained as much as 9%. In monthly terms, prices inched up 0.4%.
While there has been some speculation that discussions amongst the MPC recently could spark a hike for the benchmark, most expect a move no earlier than 2018. The council also appears convinced that growth will return to form by the second quarter, as investment picks up.

Poland’s GDP expanded 2.8% in 2016 on the back of the weakest investment since 2010. The result is below the government’s outlook of 3%-3.2%, which was anyway a reduction on earlier predictions for an economic expansion of 3.8%.

Inflation is expected to continue rising in the coming months, reaching a peak of slightly over 2% y/y in March-April. Following that, inflation should stabilise around 2%, Bank Millennium predicts.

“Unless oil prices grow rapidly, inflation will not reach the target of 2.5%. In our opinion, the most likely monetary policy scenario is for no hike of interest rates in 2017,” the bank writes.


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