Polish August Inflation Slowed to 3.8%, Matching Forecast

Polish consumer-price growth slowed in August as fuel costs eased, building the case for an interest-rate cut this year.

The inflation rate fell to 3.8 percent from 4 percent in July, exceeding the 3.5 percent upper end of the central bank’s tolerance limit for the 20th month, the Central Statistical Office in Warsaw said today. That matches the median estimate of 29 economists in a Bloomberg survey. Prices dropped 0.3 percent from the previous month.

The European Central Bank last week revised down economic projections for the euro area, Poland’s largest export market, further weakening the country’s outlook after gross domestic product grew the least in almost three years in the second quarter. Additional signs of a slowing economy and inflation will determine any change in borrowing costs, Governor Marek Belka said on Sept. 5 after the central bank’s monetary policy council kept rates at a three-year high of 4.75 percent.

“Practically speaking, inflation right now isn’t significant,” said Andrzej Bratkowski, a member of the central bank’s Monetary Policy Council told TVN CNBC in an interview, adding that the panel should be focused on where inflation and growth may be a year from now. “For me, indicators of economic activity are more important.”

No Risk

The data show there’s no risk inflation will accelerate on food and fuel prices, Bratkowski said. That means policy makers must choose between worsening the slowdown by keeping rates steady, or easing now and waiting for inflation to return to the central bank’s 2.5 percent target.

“Whatever we do, I think inflation will be back at the target by the first quarter,” Bratkowski said.

The zloty gained to 4.1041 per euro at 2:57 p.m. in Warsaw, paring its loss to 0.2 percent on the day. The yield on Polish two-year bond fell 2 basis points to 4.11 percent, according to data compiled by Bloomberg.

The extra yield investors demand to hold Polish dollar- denominated bonds rather than U.S. Treasuries increased six basis points to 136, indexes compiled by JPMorgan Chase & Co. show. The spread over German euro-denominated bonds widened four basis points to 329, according to data compiled by Bloomberg.

EU’s Fastest

Economic growth will probably slow to 2.7 percent this year, the 27-nation European Union’s fastest pace, from 4.3 percent in 2011, the European Commission estimates. Poland’s expansion eased to 2.4 percent in the second quarter from a year earlier, compared with 3.5 percent in January-March, as domestic demand dropped and key export markets in the 17-nation euro area slipped into a recession.

Growth in Polish fuel prices slowed to 10.2 percent last month after rising 10.6 percent in July, today’s report showed. Communication costs increased 0.1 percent, compared with 3.6 percent in the previous month.

Today’s data “have a rather limited impact on the Monetary Policy Council,” Rafal Benecki, chief economist for Poland at ING Groep NV in Warsaw, said by telephone. Policy makers “are focused on activity data and the performance of the zloty.”

The central bank may cut rates in October and ease by a minimum of 1 percentage point over the next nine months after “further negative surprises” on the economy, Benecki said.

The government, which is sticking with its 2.5 percent growth target this year, cut next year’s goal to 2.2 percent and the central bank expects a 2014 rate of 1.8 percent. The euro region’s economy will contract between 0.2 percent and 0.6 percent this year, ECB President Mario Draghi said on Sept. 6.

Poland’s budget deficit will be about 3.5 percent of GDP this year, missing the 2.9 percent goal, Finance Minister Jacek Rostowski said on Sept. 5. The shortfall was 5.1 percent last year and a record 7.8 percent in 2010.

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net