Polish Inflation Slows, Backing Case for Stable Interest Rates

  • CPI slowed to 1.9% in January, in line with forecasts
  • Consumer-price growth seen staying moderate this year

Polish inflation slowed to a five-month low, bolstering the central bank’s to keep borrowing costs stable as price pressures remain subdued.

Consumer-price growth decelerated to 1.9 percent from a year earlier in January, continuing its slowdown after hitting the central bank’s 2.5 percent target in November, the statistics office said Thursday. That’s in line with the median estimate of 23 economists. Prices rose 0.3 percent from the previous month.

The European Union’s largest eastern economy is set to maintain robust growth following its 5.1 percent annual expansion in the fourth quarter of 2017, the fastest pace in six years. Even so, the central bank sees inflation constrained around its 2.5 percent target through 2019. Governor Adam Glapinski reiterated last week that that’s enough to stick to the approach of standing pat this year, a view shared by some of his colleagues who until recently disagreed.

“Consumer-price growth, after quite a sharp slowdown in the early months, will remain moderate also for the rest of the year, supporting the current ‘wait-and-see’ bias,” said Monika Kurtek, chief economist at Bank Pocztowy in Warsaw. “It’s quite difficult for policy makers to find arguments in favor of any tightening, and the dovish majority within the council has recently even strengthened.”

The central bank last week extended the nation’s longest-ever pause in interest rates by leaving the benchmark reference rate at a record-low 1.5 percent. Council members Lukasz Hardt and Jerzy Osiatynski, who’d earlier flagged risks of above-forecast inflation amid higher wage growth, backed Glapinski’s long-held view on keeping rates stable this year.

The deceleration in inflation since November has mainly been down to base effects, though other factors -- including risks to core inflation and a tight labor market -- should be taken into account too, mBank said.

“Prices will accelerate briskly from the second quarter,” the bank said in a note. “One should look through short-term fluctuations. The Polish labor market is operating normally and fits regional trends: wage inflation is coming.”

— With assistance by Josh Robinson

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