The latest inflation data came as a negative surprise and the outlook remains uncertain. In turn, the economy is showing signs of an upcoming economic downturn, although there is a chance to avoid a recession. Much will depend on the external situation, mainly on the energy resources market, and the condition of the German economy.
According to preliminary data of the Central Statistical Office, the consumer price index was 16.1 percent in August. higher than the year before. This result was worse than expected, as economists assumed that inflationary pressure would slow down and the index stabilized around 15.6%. August was usually a relief for consumers, but this year we are dealing with special conditions. Earlier forecasts that inflation in Poland will peak in August are still possible. There is a high probability that its dynamics will be lower in the coming months. The bigger unknown is the situation with a slightly longer horizon. This is mainly due to the already decided increase in electricity tariffs at the beginning of next year. Only its scale remains unknown. Representatives of the Energy Regulatory Office announce that it may reach several dozen percent, but many experts from the energy industry warn that the increase in electricity prices may be much higher, affecting the costs of many other goods and services. The most pessimistic scenarios cannot be ruled out, according to which inflation may temporarily exceed 20%. Later in the next year, its dynamics should decrease more clearly.
The persistent rise in inflation was one of the main reasons for another interest rate hike at the September meeting of the Monetary Policy Council. In line with earlier forecasts, the MPC decided to raise the reference rate by 25 basis points, which in turn causes it to increase from 6.50 to 6.75 percent. – the highest level since November 2002. This is the eleventh rate hike in the ongoing cycle.
At the same time, we are dealing with signals announcing a slower pace of economic growth. The data for the second quarter showed a significant decline in GDP growth, but we still had to deal with its growth by 5.5%, which is still a very good result. However, sharp deceleration will continue in the coming quarters. The official forecasts of the Ministry of Finance assume an average annual growth rate of 4.6%. this year and only 1.7 percent. next. This tendency should lead to a gradual easing of the monetary policy, and thus initially to the MPC withholding from raising interest rates, and in the second half of 2023, even lowering them can be expected. The latest reading of the PMI index, which signals the development of the situation in the industry, suggests that the slowdown in the economy may be stronger than previously expected.
Author: Tomasz Rzeski, Country Sales Manager of the Inbank Branch in Poland
