Polish Zloty: Inflation re-acceleration weighs on PLN – Commerzbank

Commerzbank’s Tatha Ghose highlights growing challenges for Polish policymakers, citing stretched fiscal plans and accelerating underlying inflation. PPI and wage growth have picked up sharply since the Iran war, leading him to argue that further National Bank of Poland rate cuts should be ruled out. With NBP likely to stay non-committal, this backdrop is seen as negative for the Zloty.

Fiscal strain and inflation curb rate-cut hopes

"Developments in the Polish economy are turning less comfortable for monetary policymakers. We can cite two areas: 1) the fiscal situation and 2) underlying inflation dynamics."

"Moving on to inflation news: PPI inflation accelerated to 2.8%y/y in July from 1.9%y/y in June, faster than the 2.5% consensus. This is consistent with the broader energy and commodity shock story: renewed US-Iran hostilities pushed oil and natural gas prices higher, and the outlook for August is poor because oil prices have continued to rise."

"As usual, the year-on-year picture is not reliable: on our preferred seasonally-adjusted month-on-month basis, inflation drivers such as PPI and wages are notably accelerating; PPI has reversed from being deflationary to sharply inflationary since the start of the Iran war."

"This should rule out further rate cuts by Poland’s National Bank (NBP) for the foreseeable future – NBP governor Adam Glapinski’s earlier indication that rate cuts may soon follow should now be treated as obsolete information."

"Assuming that NBP will at best stay non-committal about future rate moves, the development is negative for the zloty because inflation data are accelerating faster than NBP is likely to turn hawkish."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)