Long-term high inflation is more dangerous than a temporary economic slowdown, assess the economists of ING Bank Śląski. The war has a stronger negative impact on price processes than on economic activity, which creates a situation for further normalization of monetary policy, ie interest rate increases towards 7.5-8.5%, according to the bank’s analysts.
“Even if there is a slowdown in the second half of 2022, we are falling from such a high level (Q1-Q2 2022) that the annual GDP in 2022 will average to ~ 4.5% y / y. The more dangerous is that the inflation spiral out of control, our forecasts of CPI in the peak of 15-20% remain in force. The greater threat to the economy today is high, long-lasting inflation than the temporary economic slowdown. Inconsistent policy mix (monetary tightening, budget easing) only raises this risk. do your job quickly and raise rates to a minimum of 7.5-8.5%, according to comments from chief economist of ING Bank Śląski Rafał Benecki and the economist of ING Bank Śląski Adam Antoniak in the report.
They pointed out that the wage growth clearly indicates a very strong wage pressure and highlights the price-wage spiral.
“Today’s data set clearly shows the scale of inflationary pressure combined with a tight labor market and rising wage demands. There is a growing risk of price processes slipping out of the central bank’s control. The data raises the chances of a 100bp hike in June, or a series of 75bp. comments on whether the MPC will react to high PPI and wages, or weaker production. We are afraid that whether the GDP slowdown in the next quarters of 2022 will help the CPI sufficiently, with such a strong labor market and large fiscal expansion,” wrote the economists.
The Central Statistical Office (GUS) announced today that sold production of industrial enterprises increased by 13% y / y in April 2022. In monthly terms, a decrease of 11.3% was recorded. Average wages and salaries in the enterprise sector (employing more than 9 people) in April this year. increased by 14.1% y / y, while employment in enterprises increased by 2.8% y / y.
This week, the chief economist of S&P Global Ratings for the EMEA region, Sylvain Broyer, announced that the agency expects interest rates to rise in Poland to 7% or higher. He assessed that the Agency expected “one or two increases in the Czech Republic, more in Hungary and also more increases in Poland – probably towards 7%, if not higher”.
The MPC started to raise interest rates in October 2021 and raised them every month. In total, after eight increases – including the May one by 75 bp – the main reference rate increased by 5.15 percentage points. up to 5.25%.
Source: ING BSK and ISBnews
