Poland's producer price index (PPI) grew 15.9% y/y in February following a revised expansion of 16.1% y/y the preceding month, the country’s statistics office GUS said on March 18.

The PPI remains at one of the highest levels since the late 1990s. The growing prices in the industrial sector will be reflected in higher consumer prices, driving up the CPI, the headline inflation index.

The February fall in PPI indicates that the price shock related to last year's increase in energy commodity prices began to fade,” Poland’s state-controlled bank PKO BP said in a comment.

Feeble as it was, the easing will be short-lived, as Russia’s attack on Ukraine will bring back price growth across the economy on the back of energy getting more expensive again unless the war leads to a strong weakening of demand, the bank added.

There are premises for demand to remain robust, however. Even the influx of 2mn refugees from Ukraine may not necessarily mean an increase in unemployment but will rather reduce huge labour shortages that have long plagued the Polish economy. 

The war will also “increase the inflationary pressure at the producer level, which will be visible not only in the high prices of energy resources but also in the high prices of some industrial metals,” Bank Millennium said.

Russia and Ukraine are major suppliers of steel products, electric wires or nickel.

The PPI reading appears all but certain to give the National Bank of Poland more ground to raise interest rates for the seventh consecutive time in April. 

“The NBP is determined to bring inflation down to the target in the medium term and to anchor inflation expectations. [It] must continue the monetary tightening cycle [and] in our opinion, the target interest rate will rise to 5% against 3.5% currently,” Bank Millennium said.

Prices in the most-weighted manufacturing segment grew 14.2% y/y in February, after expanding 13.8% y/y the preceding month, the breakdown of the data showed.

Mining and quarrying prices grew 22.3% y/y in February (January was +24.6% y/y following revision).

Electricity, gas, and utility prices expanded 26.6% on the year in February after a revised expansion of 29.9pp in the preceding month. The water supply segment saw prices add 0.2pp to the revised January figure to come in at 4.4% y/y.

In monthly terms, the PPI grew 0.9% in February after a revised 2.4% m/m in January, GUS data also showed.

The index grew 0.7% m/m in mining and quarrying and 1.1% m/m in manufacturing. The PPI declined 1.5% m/m in the utility segment and added 0.4% m/m in water supply.