Polish Aug inflation sinks to 1.5 pct yr-on-yr, well below expectations

Sep 13, 2007 - Polish consumer price inflation showed a shock drop to 1.5 pct in August from 2.3 pct a month earlier, compared to market expectations of 1.9 pct, statistics office data showed.

The office said consumer prices fell 0.4 pct month-on-month.

The office's data also showed clothing and shoes prices fell 7.5 pct year-on-year, while recreation costs fell 2.7 pct and telephone costs 2.4 pct. Food and non-alcoholic drinks rose 3.1 pct year-on-year, while fuel prices fell 0.5 pct.

Polish economic growth beats forecasts in Q2, more rate hikes likely

Aug 30, 2007 - The Polish economy grew 6.7 pct from a year earlier in the second quarter and beat analysts' expectations on the back of booming domestic demand, paving the way for more rate hikes.

The expansion slowed from its fastest rate in a decade of 7.4 pct in the first three months of the year, but still exceeded average forecast of 6.1 pct from economists polled by state news agency PAP.

Growth in the European Union's largest post-communist economy was driven by a 9.3 pct rise in domestic demand.

Falling unemployment and a record rise in wages encouraged consumers to raise their spending by 5.1 pct and companies increased inventories by 34.2 pct to meet growing demand. Investments jumped 22.3 pct.

The data sparked hawkish comments from the central bank's policymakers after they raised borrowing costs for the third time this year to 4.75 pct yesterday.

Marian Noga said the data showed price pressures were on the rise and called for three more rate hikes by the middle of next year, as inflation could rise to 2.9-3.0 pct in December from 2.3 pct last month.

Stanislaw Owsiak, seen as a dove on the 10-strong monetary policy council, chimed in, saying inflation may be on the rise, but stopped short of calling for another rate hike.

"Second-quarter data points towards the possibility of growth in inflation pressure and confirms that this year's decisions to raise rates were right," Owsiak told Thomson Financial News in a telephone interview.

Poland's finance minister Zyta Gilowska took a more benign view of the data, saying the economy should grow by more than 6 percent this year, but the expansion was close to its peak and inflation pressures were easing.

"Second-quarter data are excellent," Gilowska told reporters. "They show pressures in trade are easing, which is particularly evident in the price of building materials, which makes pressure to raise prices weaker."

While analysts agree that the economy could be losing its momentum they expect expansion to continue in the coming quarters. It should be buoyed by strong consumption after the government cut payroll taxes in July, boosting disposable income of consumers as well as double-digit growth in investments.

"In the coming quarters we expect a continuation of some slowdown in economic activity, but its scale may be lower than had been previously expected," BZ WBK analysts said in a comment.

Polish central bank raises rates third time to keep inflation at bay

Aug 29, 2007 - Poland's central bank raised the benchmark interest rate for the third time this year to keep inflation in check after record growth in wages and surging consumer demand.

The reference rate rose 25 basis points to 4.75 pct, the monetary policy council said in a statement released today at the end of its two-day meeting. The rate-setting council lifted borrowing costs in April and June from the record low of 4 pct.

The bank's chief Slawomir Skrzypek will hold a news conference today at 4.00 pm CET to explain the decision.

Asked to comment on today's rate hike, Prime Minister Jaroslaw Kaczynski said "this is not good", adding he couldn't do anything about it because the "council is independent."

The European Union's largest post-communist economy grew 7.4 pct in the first three months of the year, its fastest expansion rate in a decade, on the back of higher investments and rising consumers spending.

The recent data showed wages posted a record rise in the second quarter as unemployment fell from its multi-year highs, helping retail sales grow 17.1 pct year-on-year in July.

While inflation has stayed below the central bank's 2.5 pct target some policymakers said in recent weeks that tightening a job market coupled with growing labour costs could spill over into consumer prices in the coming months.

"Today's decision shows that the council is concerned about the rise in inflation in the near future, in the context of labour market developments," said Ryszard Petru, chief economist at Bank BPH in Warsaw. "Hence, we should expect a hawkish statement and another hike in rates in October."

In separate interviews with Thomson Financial News earlier this month, Dariusz Filar and Halina Wasilewska-Trenkner said the central bank should act now to prevent inflation from spiraling out of control in the future.

Analysts agree that the tightening cycle will not end with an August hike and expect the main rate to peak at 5.5 pct next year. They also say the government's decision to raise the minimum wage by a quarter next year could strengthen the central bank's resolve to fight inflation.