See you we have 13.9 percent in May, the most in 24 years, but this is not yet the maximum price growth that awaits us. Experts assume that the inflation peak is ahead of us, including experts from the Polish Economic Institute (PIE), a public think tank, who presented their latest economic forecasts.
Inflation will increase even more
According to PIE, inflation in June and July it will exceed 14 percent, and it will reach the highest level in August, when it will be 15.8 percent. This year’s average is expected to amount to 13.2 percent. The next one will not be double-digit, but still high – economists from PIE forecast the average annual index at 8.6%, although in individual months at the beginning of 2023 we will see even more than 14%.
And these forecasts assume that it will still function lower VAT and excise duty under the so-called anti-inflationary shields (food, fuel, energy). The Polish Economic Institute expects the government to cancel the shields only in 2024. And then this move will raise the price index by about 2.5 percentage points. – inflation is expected to average 4.5 percent. This is much less than today, but still clearly above both the inflation target measure NBP (2.5%) and the upper one border deviations from this target (3.5%).
We will return to what the Polish central bank can do, for now we will look at the prices from the PIE forecast. By the time inflation starts to decline, it will continue to spread widely. Even 70 percent. prices this year is expected to increase by over 5 percent. The prices of food and energy are going up particularly clearly. In the next two years, food is expected to rise by more than 10 percent, most in the case of cereal products and meat, which is the result of the Russian war in Ukraine. Drought, which will lower yields, may be boosting food prices in Europe. The issue of the availability and prices of fertilizers can also reduce the harvest – Russia is the largest global exporter of nitrogen fertilizers, and Belarus of potassium fertilizers, and both of these countries are affected by Western sanctions.
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In the case of energy, there is also no good news. “The chances of a decline in energy commodity prices on world markets are slim,” PIE experts write in their analysis. In their opinion, crude oil prices will stabilize around 105 dollars per barrel (currently it’s around closer to $ 120). This, combined with the effects of the war in Ukraine, means high fuel prices. But gas will also be expensive – and more expensive -. The Polish Economic Institute expects “further high” gas tariff increases, which are approved by the Energy Regulatory Office.
And not only food and energy prices (i.e. the most volatile ones) are rising, but also core inflation, which, although it will decline, will remain at a high level. Here the prices of industrial goods may go up, and services may go up less.
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How much will the MPC raise interest rates yet?
What about the activities of the Polish central bank? PIE expects the main rate in Poland to increase ultimately to 6.5 percent in this cycle. This means that the MPC will raise interest rates once more, in July, by 50 basis points. In their opinion, the effect of weakening consumption, boosting inflation, has probably had and will continue to do with the previous rate hikes. For the time being, this may be indicated by signals from the credit market – the number of people willing to take out mortgage loans has dropped by half.
According to PIE economists, further strong tightening of the monetary policy (ie raising interest rates) could have a negative impact on mortgage repayment (it is not visible yet). Of course, it’s not that the situation cannot change. In the fall and winter, we will probably see the impact of rising energy costs for households (heating, energy electric, gas). There is no MPC decision meeting in August anyway.
If the NBP decides to end the cycle of rate hikes soon (which Adam Glapiński seemed to suggest during the last press conference), it will do so at an interesting time. The world’s major central banks are just starting to get started, or even just starting to operate. Today, Wednesday, June 15, the rates are likely will raise the US Fed, much more than it was expected a week agobefore we got the worse-than-expected inflation data in the United States. Also in July, the European Central Bank is to start a rate-raising cycle (the main rate is now negative there).
GDP will grow decently this year, and slower next next year
The Polish Economic Institute also forecasts that in 2022 the Polish economy will grow by 4.8 percent. Not bad, considering the much gloomier expectations that appeared right after the outbreak of the war in Ukraine. It turned out, as PIE points out, that the industry is doing better than expected, and there was additional demand due to the influx of Ukrainian refugees. It was and will be visible in the data for the first two quarters of this year, the next ones will be weaker. The demand will fall, and what drove 8.5 percent. growth in the first three months of this year – company inventories.
Next year PKB Poland is expected to grow less, by 3.5 percent. Then we will also see a positive impact on investments of funds from the National Reconstruction Plan – they will add about 1 percentage point to economic growth.
The outlook for the labor market is bittersweet. It’s sweet for some employees, because according to PIE, this year salaries will increase by an average of 13.2 percent. (i.e. basically similar to consumer prices), and in the next year by about 10.1 percent. (and the average annual inflation rate – let us recall 8.6%). There are also still a shortage of employees, so employers are willing to fight for them with higher wages. The newcomers from Ukraine will not be of much help here – currently mostly women with children, who will reduce the wage pressure only in some industries. “The scale of shortages is currently one of the highest in comparison to other European Union countries, which is conducive to the consolidation of the wage-inflation spiral” – experts from the Polish Economic Institute write. In their opinion, we can see double-digit wage increases until the middle of next year.
To sum up: according to the Polish Economic Institute, we will see a slowdown in the economy, although it will not be deep. On the other hand, prices will continue to rise, especially for food and energy, but not only. The wage pressure from the labor market will also add to it.
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