Polish CPI accelerated by 0.9pp to 6.8% y/y in October, the highest point since May 2001, the statistical office GUS said in a flash estimate on October 29. 

Price growth thus continues uninterrupted, with the flash reading 0.4pp above the consensus and the CPI all but set to exceed 7% y/y in November and December. The October reading also makes it nearly certain that the National Bank of Poland (NBP) will raise interest rates for the second time this year during its meeting on November 3.

The NBP’s Monetary Policy Board had already raised interest rates by 40bp to 0.5% in October, taking the markets by surprise “on purpose”, according to NBP Governor Adam Glapinski. But the current cost of money will not hold for long, given the accelerating inflation, analysts say with confidence.

“The NBP must tighten monetary policy further and we expect a 50bp increase at next week’s rate-setting meeting,” Erste wrote.

Inflation in October surged on the back of fuel prices ballooning 33.9% y/y, adding to the expansion of 28.6% y/y the preceding month.

That said, “inflation is largely driven by rising commodity prices, but this does not mean that it is purely supply side. In conditions of strong demand, higher production costs are passed on to consumer prices, so rising prices are also the effect of strong demand and further fiscal and monetary stimulation,” Bank Millennium said.

Food and non-alcoholic drinks prices also stepped up their annual growth rate, increasing 4.9% y/y in October after adding 4.4% y/y in September. Growth in energy prices picked up to 10.2% y/y in the tenth month after growing 7.2% y/y in September.

Core inflation thus picked up to 4.5% y/y – 4.6% y/y in October from 4.2% y/y in September, analysts estimate.

In monthly terms, the CPI increased 1% in October from 0.6% m/m the preceding month, the flash estimate also showed. Prices of food and non-alcoholic drinks grew 0.5% m/m, while prices of energy expanded 3% on the month. Fuel prices grew 3.1% m/m.

The outlook for inflation is that October’s 20-year high is not the last. “It is all but certain that headline CPI will surpass 7% y/y in November and it should peak at 7.5% y/y - 8.0% y/y at the turn of the year. However an even higher level cannot be ruled out,” Erste wrote.

“We see the main rate at 2.5% in 2022-2023 with upside risk,” ING said. Erste sees the rates at 2%-2.5% by mid-2022. PKO BP appears more dovish, as it pencils in interest rates at “around 2%” at the end of 2022.

Poland’s rates have been lingering at an all-time low of 0.1% since mid-2020 after they were slashed three times in rapid succession to lessen the impact of the COVID-19 (coronavirus) pandemic. Coupled with a massive influx of government-printed money into the market, the strategy worked in keeping bankruptcies and the unemployment rate at bay. The cost has been adding to inflation, already on the rise due to external factors, mostly via the commodity markets.