Polish Inflation Probably Sped Up to 31-Month High in April

Polish inflation probably accelerated to the fastest since September 2008 last month as concern that price-growth is spreading beyond food and fuel prompts the central bank to raise interest rates.

Consumer prices rose an annual 4.5 percent, compared with a 4.3 percent increase in March, according to the median estimate of 22 economists surveyed by Bloomberg. The Central Statistical Office will release price data at 2 p.m. in Warsaw.

The central bank unexpectedly raised the benchmark seven-day interest rate by a quarter-point to 4.25 percent on May 11, the third increase this year. Governor Marek Belka said policy makers considered inflation to be “broad-based.” Prior to January, the bank’s Monetary Policy Council had kept rates at 3.5 percent for 18 months to spur economic growth.

“The May rate decision can be interpreted as an attempt to make up for lost time and tame inflation” by strengthening the zloty, said Piotr Kalisz, chief economist at Citibank Handlowy in Warsaw. “Policy makers most likely decided to bring inflation down to its 2.5 percent target through more active stimulation of the currency exchange rate.”

The zloty has gained 1.45 percent against the euro since April 20, the second-best performance among 11 currencies in east Europe and Africa that are tracked by Bloomberg. The Polish currency weakened for the first time in six days today, falling 0.1 percent to 3.9139 against the euro at 10:55 a.m. in Warsaw.

The central bank is concerned an accelerating economic recovery and growing employment may lead to increased pressure on wages and prices. Belka said the council’s May 11 decision “quickened” the monetary-tightening schedule without altering the scale of planned rate rises, boosting expectations for more increases.

“The unexpected May rate increase suggests that the Monetary Policy Council is focusing on new risks, including elevated inflation in the second half of 2011, and may be ready for more rate increases than it deemed necessary earlier this year,” economists at ING Bank Slaski in Warsaw said today in an e-mailed note to clients.

Derivatives Bets

Investors in the derivatives market are signaling the bank will lift borrowing costs by at least 25 basis points within the next three months. Three-month forward rate agreements are trading 31 basis points above the three-month Warsaw interbank offered rate, up from 29 basis points before Belka’s comment, according to data compiled by Bloomberg.

Today’s inflation report probably won’t prompt another rate increase in June, said Piotr Bielski, an economist at Bank Zachodni WBK in Warsaw.

“This council acts when inflation breaks a psychological barrier and the next one would be around 5 percent, so this slight acceleration is not going to make them hike again in June,” Bielski said by phone. “It would make more sense to have raised rates by 50 basis points in May as it’s not about affecting Brazilian coffee prices but rather the inflation expectations before they boost pressure on wages.”

Core inflation, which excludes food and energy prices, rose in March to a one-year high of annual 2 percent. The rate is expected to rise to 2.1 percent, according to the median estimate of 14 economists surveyed by Bloomberg.

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