- PKO, Capital Economics raise questions about Polish statistics
- Discrepancies support case for extending year-long rate pause
What’s a central bank to do when record deflation warps economic data? In Poland, the answer may be more of the same.
Even as gross domestic product expanded by at least 3 percent annually each quarter for over two years, state-controlled lender PKO Bank Polski SA, the nation’s biggest, says the growth spurt may be understated. Using real gross domestic income, or GDP adjusted for terms-of-trade gains, shows a “considerably higher” pace of increases, according to PKO. GDP growth last quarter decelerated to the slowest since 2013, the Central Statistical Office said on Friday.
Capital Economics Ltd. says “measurement issues” may also be distorting the depth of deflation, and the risk is that real GDP growth data is actually overstated. It agrees with PKO, however, on the takeaway for the National Bank of Poland: it needs to stay on hold for longer.
“Stronger GDI growth -- and possibly stronger underlying growth trend -- strengthens the case for no change in NBP policy rates in 2016, and a shift to a tightening bias by the MPC in 2017,” PKO economists including Radoslaw Bodys said in a note.
Analysts are increasingly siding with the central bank, which has kept its benchmark rate at a record-low 1.5 percent since March 2015. It’s pointed to signs of economic growth and stressed that the longest deflation in 60 years is being fueled by factors beyond its control, such as falling oil and food costs. Policy makers requested an explanation from the statistics office and the central bank’s Economic Institute on the methodology used to calculate the consumer-price index, according to outgoing Governor Marek Belka.
“Together with many ordinary Poles, I have a feeling that prices in shops provide no evidence that deflation is as deep and persistent as suggested by the statistical office,” Jerzy Zyzynski, a new member of the Monetary Policy Council, said in an interview. “If it turned out that the CPI is for methodological reasons inadequate, and that prices are indeed higher, then real interest rates would automatically turn out to be not as high as they appear now, eliminating one of the arguments for monetary easing.”
The bout of deflation that started in July 2014 won’t ebb until the third quarter, according to the central bank, which has missed its 2.5 percent goal for price growth for more than three years. The annual index dropped to a 12-month low of minus 1.1 percent in April.
After jumping 4.3 percent in the final three months of 2015, GDP rose 3 percent from a year earlier in January-March. That missed the median of 35 estimates in a Bloomberg survey for a 3.5 percent gain.
The reliability of Poland’s GDP data is rated below that of its peers including Slovakia, the Czech Republic and Slovenia, according to London-based research firm World Economics, which ranked 154 countries in its Data Quality Index published at the end of last year.
Capital Economics is pointing to several factors that may exaggerate the extent of Polish price declines compared to its neighbors in central Europe. That includes the way that the weights are calculated in measuring the national CPI and the gauge of clothing inflation, which may be “misrepresenting price moves.”
The Central Statistical Office in Warsaw said in a statement that its methodology is in line with European Union standards and is monitored by Eurostat. Some of the price tendencies in Poland, such as clothing costs, have a bigger effect because it’s a larger country than others in the region, it said.
“It’s hard to square the weakness of Polish inflation with other macroeconomic variables,” said William Jackson, an analyst at London-based Capital Economics. “The case for looser monetary conditions is less convincing than the national CPI data alone would suggest.”