- Polish inflation increased to 3.6% y/y in July, up from 3.5% y/y in June – above the consensus expectation of 3.4% and our expectation of 3.5% y/y.
- This does not however change the outlook for monetary policy in our view; we still expect the Polish central bank to keep interest rates on hold for the rest of the year with a chance of a rate cut in Q1 2010.
Polish inflation rose to 3.6% y/y in July up from 3.5% y/y in June – above the consensus expectation of 3.4% and our expectation of 3.5% y/y.
This rise in inflation, however, can mostly be attributed to higher tobacco prices (due to a hike in excise taxes), which have to be seen as a one-off and hence should have no impact on the monetary policy outlook.
We expect inflation to hover around 3½% for the reminder of the year, but with the zloty relatively stable, wage growth very subdued and the output gap still negative, inflationary pressures remain quite weak. That and a relatively strong base should push down inflation towards the Polish central bank’s inflation target of 2½% during 2010.
In a comment on the inflation numbers, Dariusz Filar, an arch-hawk on NBP’s Monetary Policy Council (RPP), said that there is “no scope for further interest rate cuts”. We are not overly surprised by Mr. Filar’s comments as he is, after all, an arch-hawk, and given that it has been clear for some time that there is more or less consensus on the RPP to keep rates on hold for the rest of the year. That said, we still see the chance of a rate cut in early 2010.
