Polish Inflation Rate Falls to Lowest Since August 2007

Polish inflation slowed in January to the weakest pace since 2007 after domestic demand plummeted, boosting pressure on the central bank to keep cutting borrowing costs to spur the economy.

The inflation rate declined to 1.7 percent, the lowest since August 2007 and compared with 2.4 percent in December, the statistical office in Warsaw said today. That was less than the 2 percent median estimate of 30 economists in a Bloomberg survey. Prices rose 0.1 percent from the previous month.

Struggling with inflation above its 2.5 percent target since October 2010, Poland’s central bank was the only one in the European Union to raise rates last year. The Narodowy Bank Polski has reduced the benchmark since November a combined 100 basis points to 3.75 percent as the EU’s largest eastern economy slowed to a three-year low of 2 percent last year.

“There’s definitely more room to ease monetary policy,” policy maker Anna Zielinska-Glebocka said in an interview on TVN CNBC after the data, adding that she would support a rate cut in March. “I don’t think there’s huge scope because we expect the economy to improve in the second half and perhaps some inflation pressure could appear at the end of the year.”

Currency Moves

The zloty weakened to as low as 4.1959 per euro in Warsaw after the inflation report and traded at 4.1889 at 2:45 p.m., down 0.3 percent on the day. The yield on the government’s 10-year zloty bonds fell 7 basis points to 4.01 percent.

Individual consumption added 0.5 percent to Poland’s gross domestic product last year, the least since comparable data were introduced in 1995. Retails sales dropped the most since 2005 in December and the jobless rate rose to 13.4 percent, the highest in almost a year.

“We may expect that the lowest CPI could be in April,” between 1 percent and 1.2 percent, Jaroslaw Janecki, a Warsaw-based economist at Societe Generale, said by phone after the report, adding that he expects the central bank to cut its benchmark by 25 basis points next month.

Because the statistical office changes the price basket at the start of each year, the January inflation rate is subject to revision, which will be released next month along with the February report on price growth.

Poland’s central bank should stop lowering borrowing costs now and keep its benchmark rate unchanged, “possibly” for the rest of 2013, to ensure stable prices as economic growth recovers, central banker Adam Glapinski said in an interview in Warsaw on Feb. 13.

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