Poland's MPC highlighted risks to inflation from fiscal policy in September - minutes
Poland's Monetary Policy Council in September noted that one of the risks to the inflation outlook is the shape of fiscal policy, and that the preliminary draft budget for 2025 does not indicate a tightening of fiscal policy, according to a description of the discussions held at the MPC meeting on September 4 (so-called minutes). The Council pointed to a gradual decline in wage growth.
"It was noted that the fiscal policy was one of the risk factors for the inflation outlook in the medium term. According to the preliminary draft budget, the government is planning the 2025 public finance sector deficit in ESA2010 terms at the level of 5.5 percent of GDP, considerably above the level announced by the government in April 2024," the report said.
"It was assessed that – although the excessive deficit procedure had officially been initiated – the preliminary draft budget for 2025 did not indicate fiscal policy tightening which would favour a reduction in inflationary pressure. Some Council members also indicated that not only the size of expenditure, but also its type structure were of considerable importance for inflation developments," it added.
At the MPC's meeting in September, there was an opinion that, considering elevated inflation - including inflation net of food and energy prices - as well as a recovery in consumer demand and high wage growth, the current level of NBP interest rates, given the current evolution of inflation expectations, is too low to ensure a sustainable return of inflation to the target in the medium term.
Discussing the inflation outlook, Council members pointed out that CPI inflation, including inflation net of food and energy prices, is likely to rise somewhat in the near term.
They pointed out that price growth could still increase in the first quarter of 2025, with the scale of the increase subject to uncertainty related to decisions on administered prices of energy carriers.
It was also emphasised that the increase in excise duty on alcohol, as assumed in the preliminary budget bill, and the increase in excise duty on tobacco, much stronger than implied by the so-called roadmap, would have an impact in the direction of higher CPI dynamics in 2025.
Some MPC members pointed out that, according to forecasts, core inflation would continue to be elevated in subsequent quarters.
Some Council members also stressed that current inflation is below Poland's central bank NBP reference rate, while some pointed out that the elevated price growth concerned a broad group of consumer goods and services.
Some Council members pointed out that the so-called mortgage moratoria are contributing to an increase in disposable income for some households.
Referring to the situation on the labour market, it was pointed out that wage growth remains at an elevated double-digit level.
"Wage growth in the national economy in the second quarter of 2024 proved to be faster than expected, which, however, was partly the result of the postponed effects of wage increases for teachers and some other public sector employees," the minutes said.
"It was indicated that a gradual decline in wage growth could be seen in the enterprise sector. Alongside that, it was noted that in July 2024, nominal wage growth in annual terms had slowed down, although it was mainly the effect of a sharp fall in wages in mining," the document added.
It was highlighted that the decline in wage growth - together with the rise in inflation - translated into a slowdown in real wage growth in July this year.
At the same time, employment in the business sector, primarily in industry, remained lower than a year earlier.
Some members of the MPC stressed that dynamic wage growth was affecting many sectors of the economy and that companies in surveys still often declare their willingness to raise wages over the next quarter, and that the average scale of these planned increases was, in their view, relatively high.
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