Poland’s CPI surges 8.6% y/y in December, the highest rate since November 2000

Poland’s CPI surges 8.6% y/y in December, the highest rate since November 2000
By Wojciech Kosc in Warsaw January 9, 2022

Polish CPI accelerated 0.9pp to 8.6% y/y in December, the highest rate since November 2000, the statistical office GUS said in a flash estimate on January 7. 

Price growth continues uninterrupted with the flash reading 0.3pp above the forecast median. The December reading provides only more grounds for the National Bank of Poland (NBP) to keep on raising interest rates after four hikes in October-January.

“A strong rise in inflation seals the interest rate hike in February by another 50bp,” state-controlled bank PKO BP said in a comment to the GUS release.

According to PKO BP, the target of the NBP’s monetary tightening is 3.5% in 2022. Interest rates are currently at 2.25%.

But other analysts think the intervention will be much more radical. 

“We expect the reference rate to reach 4% by the end of the year and 4.5% next year,” ING wrote.

Inflation in December surged on the back of food prices growing 8.6% y/y after an expansion of 6.4% y/y the preceding month. Growth in energy prices also picked up, coming in at 14.3% y/y in the twelfth month after growing 13.4% y/y in November.

Fuel prices eased their expansion rate, adding 32.9% y/y, following an expansion of 36.6% y/y the preceding month.

“Inflation is largely driven by high commodity prices, but also is becoming driven by demand … which gives companies the space to shift the rising production prices onto consumers,” Bank Millennium wrote.

“That overlaps with the still expansionary fiscal policy and the weak zloty. This is reflected in the expected growth in price indices in industry and retail trade, although readings from recent months indicate a slowdown in the pace of growth,” the bank also said.

Core inflation picked up to around 5.2% y/y in December from 4.7% y/y in November, a new 20-year high, analysts estimate.

The surging CPI is giving the Polish government an ever-bigger political headache.

The Prime Minister, Mateusz Morawiecki, is expected to announce a new version of the government’s anti-inflation package on December 11 that will include a VAT cut on gasoline and diesel to 8% for six months, starting in February. A zero VAT on food is reportedly in the plans as well.

That said, “these government actions to limit inflation via indirect taxes delay the unavoidable consequences of the rise in energy prices,” ING noted.

“They will undoubtedly flatten the CPI path this year while extending its elevated level over time. Moreover, returning taxes to their original levels will be a tough political decision as it would result in a rapid jump in the price of fuel and energy,” the Dutch bank’s analysts said.

In monthly terms, the CPI increased 0.9% in December, slowing down from 1% m/m in November, the flash estimate also showed. 

Prices of food and non-alcoholic drinks grew 21% m/m, while prices of energy expanded 0.8% on the month. Fuel prices grew 0.2% m/m.