BANK MILLENNIUM S.A.

MIL
End-of-day quote. End-of-day quote  - 10/21
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Bank Millennium S A : Poland's core inflation picks up growth rate to 3.9% y/y in August

09/20/2021 | 09:41am

Poland’s core inflation, which measures price growth without food and energy, increased 0.2pp to 3.9% y/y in August, the National Bank of Poland (NBP) said on September 16.

Inflationary pressure in Poland has been elevated for months now and is currently expected to last longer than anticipated earlier this year, fuelled by rising prices of goods. Still, Poland’s Monetary Policy Council – the rate-setting body of the National Bank of Poland – has long been reluctant to kick off the tightening cycle. 

The MPC – which seems divided over the issue, although with doves holding a majority – says that a step away from the currently ultra-lenient policy can happen as soon as Poland’s post-pandemic economic recovery is sustainable.

The MPC will review new inflation and GDP projections during a sitting in November, widely thought to be crucial for the further course of Poland’s monetary policy. With core and headline inflation expected to keep growing, “it will be quite difficult to justify a decision not to raise interest rates” in November, Bank Millennium wrote.

Poland kept its rates at an all-time low of 0.1% after the NBP carried out three cuts in 2020 to reduce the impact of the pandemic. That did work, with the pandemic-induced recession coming in at just 2.7% last year and a strong recovery of at least 5% in 2021 very likely now.

Headline inflation growth came in at 5.5% y/y in August versus 5% y/y in July.

The central bank’s current inflation outlook, published in July, is 3.8%-4.4% in 2021, clearly high than the previous forecast of 2.7%-3.6%.

“We believe that the new projection will bring an even higher CPI than the one presented in July. [It] … should help build a majority in the MPC in favour of a rate hike later this year,” ING said in a comment.

“In our opinion, high CPI readings for November and December will be deciding factors here. We expect that at the end of the year, CPI inflation in Poland may approach 6%,” ING also said.