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Monday, October 15, 2007

Inflation in Poland September 2007

Well with all that inflation going on all round the EU 10, I guess Poland wouldn't want to be left out, now would it? So just to prove a point, Polish inflation accelerated in September for the first time in three months. As elsewhere the increases were led by food costs, but there was also a sneaky little detail of housing maintenance costs. We wouldn't be short of a Polish plummer here and there would we?

In fact the inflation rate rose to 2.3 percent, after falling to 1.5 percent in August. Consumer prices gained a monthly 0.8 percent after dropping 0.4 percent in August.

Anyway, here is the chart for monthly inflation this year.

Actually, compared with what is happening eslewhere this rate of inflation almost seems saintly. Nonetheless it looks very probable that the central bank will raise interest rates again. The Polish central bank is more likely to raise its benchmark 4.75 percent repurchase rate This would be the fourth time this year that the bank has raised the rate - which is currently at 4.75% - to try to keep price growth under control as inflation threatens to breach the bank's inflation target for a second time.

The Monetary Policy Council of the Polish central bank lifted borrowing costs in March for the first time since May 2005 after the annual inflation rate reached the bank's target of 2.5 percent. The inflation rate fell to 1.5 percent in August from 2.6 percent in June.

Food prices rose 2.4 percent in September from August and 5.1 percent from September 2006. House maintenance costs gained 0.3 percent from August and were up 3.5 percent from a year ago.

The zloty also advanced following a pattern we are seeing in other countries as people react to the idea that interest rates might rise by finding the currency more attractive without reflecting on the long term dimension of where all this is leading.

Typical of the sort of response we are seeing is this one quoted in Bloomberg:

``The data should show the need for further monetary tightening in Poland and is likely to push the euro/zloty to new five-year lows below 3.72 today and toward 3.70 this week,'' a team of analysts led by Gavin Friend at Commerzbank AG in London wrote in a research note.

But the real underlying problem is not food prices by growing labour shortages and wages, as was made clear in separate report which showed that average annual wages climbed by 9.5% in September, down very slightly from the from 10.5 percent a year rate regsitered in August. Again, we are not yet at Baltic levels, or even at Bulgarian or Romanian ones by the curve is ascending and the clock on all those labour shortgaes is ticking away inexorably.

Of course, with delicate situations developing all over the EU10 the last thing Poland needs right now is an election, but that is what we are having this Friday. The latest news on this front is that support for the Citizens' Platform - the largest opposition party - rose to a record 46 percent according to a poll carried out by TNS OBOP and published by the Dziennik daily., This would be enough to create a majority government, but matters are far from clearcut, and rolling survey by PBS DGA published in Gazeta Wyborcza daily showed backing for the Platform at 38 percent and for Law & Justice at 37 percent.

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