Polish Inflation Slowed to 27-Month Low in December

Polish inflation slowed in December to below the central bank’s target for the first time in more than two years, bolstering the case for more interest-rate cuts.

The inflation rate fell to 2.4 percent, compared with 2.8 percent in November, the statistical office in Warsaw said today. That was less than the 2.5 percent median estimate of 33 economists in a Bloomberg survey. Prices rose 0.1 percent from the previous month.

Poland’s central bank, faced with inflation above its 2.5 percent target since September 2010, was the only one in the European Union to raise rates last year. Since the May increase, policy makers have responded to a slowdown in the EU’s largest eastern economy by reducing the benchmark a combined 75 basis points to 4 percent. Last week, Governor Marek Belka announced the current round of monetary easing “is drawing to an end.”

“Policy makers are resisting deeper rate cuts because they still don’t believe in a sustained fall in the inflation rate below the target,” Marta Petka-Zagajewska, chief economist at Raiffeisen Bank in Warsaw, said today by phone. “What could make them believers is the data on December industrial output, which we forecast may fall 10 percent.”

The average yield on the government’s two-year Treasury bond dropped as much as five basis points after the data to 3.28 percent and at 2:25 p.m. in Warsaw traded at 3.31 percent. The zloty was little changed at 4.1190, keeping it 0.1 percent weaker on the day.

Poland’s economy, which expanded 1.4 percent in the third quarter from a year earlier, will grow 1.5 percent this year, the least since 2002, the central bank forecasts. It predicts the inflation rate may decline to below 1.5 percent next year.

The Central Statistics Office in Warsaw is scheduled to publish industrial output and producer price data for December on Feb. 18.

To contact the reporter on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net

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

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