PPI inflation, which has been declining in recent months, signals a possible easing of cost pressures affecting consumer prices, according to the Monetary Policy Council (MPC).
Inflation, however, is still at high levels, which is largely due to the transfer of cost increases to the prices of consumer goods. High commodity prices are reflected in rising food and energy prices, and – along with the lingering effects of past disruptions in global supply chains – are increasing the cost of operating businesses, which, in an environment of still relatively high demand, prompted companies to raise prices and contributed to higher core inflation, according to a communiqué published after the MPC meeting.
On the other hand, the so-called anti-inflationary shield continued to have a limiting effect on consumer price dynamics. At the same time, PPI inflation has been declining in recent months, signaling a possible easing of cost pressures affecting consumer prices, according to the statement
The Council reiterated that in its assessment, the expected weakening of the economic environment surrounding the Polish economy, together with the tightening of monetary policy by major central banks, will have a restraining effect on global inflation and commodity prices.
The weakening of the global economy will also act to reduce the dynamics of economic growth in Poland. Under such conditions, the significant tightening of the NBP’s monetary policy to date will promote a decline in inflation in Poland towards the NBP’s inflation target. At the same time, due to the magnitude and persistence of the impact of current shocks, which are beyond the influence of domestic monetary policy, inflation will remain high in the short term, and the return of inflation to the NBP’s inflation target will be gradual. A faster reduction in inflation would be facilitated by a strengthening of the zloty, which, in the Council’s view, would be consistent with the fundamentals of the Polish economy, it was announced.
The monetary authority also maintained that further decisions of the Council will depend on incoming information on the outlook for inflation and economic activity, including the impact of Russia’s military aggression against Ukraine on the Polish economy.
The NBP will take all necessary measures to ensure macroeconomic and financial stability, including, above all, to reduce the risk of perpetuation of elevated inflation. The NBP may intervene in the foreign exchange market, in particular to reduce fluctuations in the exchange rate of the zloty that are inconsistent with the direction of monetary policy, it was further announced.
The MPC kept its benchmark rate at 6.75% yesterday, in line with expectations.
The MPC raised interest rates for the first time in October 2021, and then raised them for 10 consecutive months, until September 2022. In total, the basic reference rate rose from 0.1% to 6.75% during this period. At subsequent meetings, the MPC decided to leave the level of interest rates unchanged.
Source: MPC and ISBnews
