Are you sure?

Polish inflation, wages above forecasts

Polish consumer prices and wages grew faster than expected in January, showing once again that underlying inflationary pressures were rising further in Central Europe’s biggest economy, analysts said.

Statistics office data showed inflation at 4.3% year-on-year last month, up from 4% in December and much above the central bank’s 2.5% target. Wage growth came in at 11.5% year-on-year. figures were above expectations. The Polish zloty firmed after the data, while bond prices eased. The data cemented expectations that the central bank’s Monetary Policy Council (MPC) will raise interest rates again, but they were not enough to change analysts’ forecast of flat rates this month.

Analysts expect another hike of 25 basis points, which would bring the central bank’s main rate to 5.5% from current 5.0%, in March or even slightly later. “This (inflation) data plus wage data strengthen hike expectations. This is negative for the (yield) curve. We expect a hike in March,” said Rafal Benecki, senior economist at ING Bank in Warsaw. Soaring wages, the main source of inflationary pressure, are also troublesome to companies. Companies are complaining they find it difficult to find workers.

The finance ministry already said that labor shortages and soaring wages could prove to be the main obstacle to maintaining high growth. “Labor costs in the economy are rising and employees are probably expecting even more salary rises,” said Marek Radwanski, deputy head of Intersport, producer of sports equipment. “This is why we decided to build a highly mechanized warehouse, with a minimum participation of workers, to ensure we do not have to face wage pressures and labor shortages in a few years.” Poland’s economy is estimated to have grown 6.5% last year and is seen slowing slightly to around 5.5% in 2008. (Reuters)