Poland to see inflation back to target once impact of energy prices and wage growth reduction fades - MPC
Poland's Monetary Policy Council assesses that once the impact of the increase in energy prices has faded, with the expected reduction in wage growth and at the current level of rates, CPI should return to target, with uncertainty about the impact of energy prices on inflation expectations, the MPC said in its post-meeting statement. According to the Council, the earlier weakening of the PLN exchange rate is having a restraining effect on inflation.
"In the coming quarters inflation will remain elevated, and in the case of a further increase in energy prices at the beginning of 2025, it will rise. When the effects of the energy price increase fade and amidst the expected slower wage growth – under the current NBP interest rates level – inflation should return to the medium-term NBP target, although the impact of higher energy prices on inflation expectations is an uncertainty factor," MPC wrote.
"The inflation developments over the medium term will be also affected by the further fiscal and regulatory policy measures, the pace of economic recovery in Poland and the labour market conditions," it added.
Poland's Monetary Policy Council assesses that inflation is currently significantly boosted by rising energy carriers’ prices and by other regulatory factors.
"The price pressure in the domestic economy is also stimulated by the marked wage growth, stemming i.a. from wage increases in the public sector. At the same time, demand and cost pressures in the Polish economy remain relatively low, which amidst weakened economic conditions and lower inflation pressure abroad curbs domestic inflation pressure. The earlier appreciation of the zloty exchange rate acts in the same direction," MPC continued.
Previously, the Council had assessed that the strengthening of the Polish zloty exchange rate, which is consistent with the fundamentals of the economy, has a restraining effect on inflation.
The MPC maintained that Poland's central bank NBP can intervene in the foreign exchange market and that the current level of NBP interest rates is conducive to achieving the inflation target in the medium term.
The Council reiterated that its further decisions would depend on incoming information on the outlook for inflation and economic activity.
MPC also said that in Poland, incoming monthly data suggest that annual GDP growth in the third quarter of 2024 may have been slightly lower than in the second quarter of this year.
"In particular, in September 2024 retail sales as well as industrial production and construction and assembly output were lower than a year ago," MPC pointed out.
"In the labour market unemployment remains low and the number of working persons continues to be high, although employment in the enterprise sector in September 2024 was lower than a year ago. At the same time, the wage growth is still running at the high level," it added.
Taking into account preliminary data from Poland's stats office GUS, the Council estimates that inflation, excluding food and energy prices, did not change materially in October, with services price dynamics likely to have remained elevated.
"In the coming quarters inflation will remain elevated, and in the case of a further increase in energy prices at the beginning of 2025, it will rise. When the effects of the energy price increase fade and amidst the expected slower wage growth – under the current NBP interest rates level – inflation should return to the medium-term NBP target, although the impact of higher energy prices on inflation expectations is an uncertainty factor," MPC wrote.
"The inflation developments over the medium term will be also affected by the further fiscal and regulatory policy measures, the pace of economic recovery in Poland and the labour market conditions," it added.
Poland's Monetary Policy Council assesses that inflation is currently significantly boosted by rising energy carriers’ prices and by other regulatory factors.
"The price pressure in the domestic economy is also stimulated by the marked wage growth, stemming i.a. from wage increases in the public sector. At the same time, demand and cost pressures in the Polish economy remain relatively low, which amidst weakened economic conditions and lower inflation pressure abroad curbs domestic inflation pressure. The earlier appreciation of the zloty exchange rate acts in the same direction," MPC continued.
Previously, the Council had assessed that the strengthening of the Polish zloty exchange rate, which is consistent with the fundamentals of the economy, has a restraining effect on inflation.
The MPC maintained that Poland's central bank NBP can intervene in the foreign exchange market and that the current level of NBP interest rates is conducive to achieving the inflation target in the medium term.
The Council reiterated that its further decisions would depend on incoming information on the outlook for inflation and economic activity.
MPC also said that in Poland, incoming monthly data suggest that annual GDP growth in the third quarter of 2024 may have been slightly lower than in the second quarter of this year.
"In particular, in September 2024 retail sales as well as industrial production and construction and assembly output were lower than a year ago," MPC pointed out.
"In the labour market unemployment remains low and the number of working persons continues to be high, although employment in the enterprise sector in September 2024 was lower than a year ago. At the same time, the wage growth is still running at the high level," it added.
Taking into account preliminary data from Poland's stats office GUS, the Council estimates that inflation, excluding food and energy prices, did not change materially in October, with services price dynamics likely to have remained elevated.
Poland's Monetary Policy Council on Wednesday, November 6, has left all the NBP's interest rates unchanged at 5.75 percent, including the reference rate. The decision has been in line with market expectations.
Poland's central bank NBP governor will hold a press conference on Thursday, November 7, at 3 pm local time.
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