Polish Inflation Quickens as Central Bank Debates Easing

Poland’s inflation rate rose in June as the central bank debates the need to return to monetary easing.

Consumer prices increased 0.3 percent from a year earlier, the statistics office in Warsaw said today. That’s above the 0.2 percent median estimate of 30 economists in a Bloomberg survey. Prices were unchanged from May.

With inflation undershooting the Monetary Policy Council’s 2.5 percent target for 19 months, the central bank retracted its pledge for steady borrowing costs through September at its July 9 meeting. Five of the seven policy makers who’ve commented this month favor keeping rates on hold because the economic outlook remains strong. Governor Marek Belka said “all possible steps” are possible in the coming months as temporary deflation sets in during the summer months.

“These data, coupled with potentially stronger growth in industrial production, may cool rate-cut expectations, but this will probably be temporary,” Rafal Benecki, chief economist at ING Bank Slaski in Warsaw, said in an e-mailed report today. “Negative inflation readings are still ahead.”

The zloty pared losses after the data release, trading down 0.1 percent to 4.1416 per euro at 2:04 p.m. in Warsaw. The yield on the five-year government bonds dropped one basis point to 2.95 percent.

Food Prices

Inflation quickened as food prices dropped 0.3 percent in June from a year earlier, led by a 3.7 percent decline in the cost of sugar and a 2.9 percent drop for fruit. Clothing prices slid 0.8 percent.

While price growth will probably stay below the central bank’s target through the end of 2016, economic growth will exceed 3 percent for the next three years, according to staff projections published by the central bank earlier this month. An inflow of funds from the European Union should give the economy a boost, Belka said on TOK FM radio last week.

Forward-rate agreements, used to speculate on borrowing costs, show the market predicting at least a 25 basis-point reduction in Poland’s benchmark by October, the most in a year, according to data compiled by Bloomberg.

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