Inflation – already at highest in two decades – jumps to new peak in Poland

Oct 29, 2021 | Business

Inflation in Poland has accelerated again to 6.8% year-on-year, making the fourth consecutive monthly rise since the start of summer, according to preliminary figures from Statistics Poland (GUS), a state agency.

The country’s inflation levels are at their highest in two decades, and among the highest currently in the European Union. In response, Poland’s central bank unexpectedly raised interest rates for the first time in nine years earlier this month, from 0.1% to 0.5%, and more hikes could be on the way.

The new figure of 6.8%, which is the highest since 2001, has once again surpassed forecasts, which were for 6.4%. A final calculation is expected in two weeks, but usually does not differ much from the initial estimate.

Poland’s inflation has consistently been among the highest in the EU over the last two years. The most recent EU-wide year-on-year data from Eurostat, for September, put Poland in third place; in August it was first; and second in July and June.

Inflation in Poland is being driven largely by fuel and energy prices, which increased in October by 33.9% and 10.2% respectively year-on-year and by 3.1% and 3% since September.

As oil and gas have become more expensive globally in recent weeks, retail prices for both petrol and diesel hit their highest level for years in Poland. Wholesale electricity costs in coal-reliant Poland have, however, temporarily become the lowest in the European Union.

Prices of food and non-alcoholic beverages increased by 4.9% year-on-year in October, according to GUS, as well as by 0.5% since last month.

Fuel prices hit highest level in years in Poland

More rises could be on the way. A report published on Thursday by Grant Thornton, a market research company, showed that 71% of companies are planning price increases. That is the highest proportion in the study’s 11-year history, reports Money.pl, a financial news service.

Grant Thornton says that its index has in the past “correlated well” with forthcoming inflation statistics, and therefore could mean “an increase in inflation to around 9% in the next 12 months”. Economists at Pekao bank expect a peak of more than 7% early next year.

The creeping inflation had put Poland’s central bank (NBP) under pressure to increase interest rates. Its monetary council did so on 6 October, raising its reference rate by 40 basis points from 0.1% to 0.5%. It was the first hike in nine years.

The NBP has argued that accelerating prices are only a temporary phenomenon – caused by circumstances such as rising oil and gas prices – and that low borrowing costs were needed to bolster economic recovery from the pandemic.

Yet inflation has now far significantly surpassed the NBP’s target of 2.5% (allowing for a one-percentage-point deviation). Economists forecast that a further rates hike could come on Wednesday next week.

Main image credit: Paul Sableman/Flickr (under CC BY 2.0)

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