November was the fifth consecutive month with a year to year decrease in consumer prices in Poland. Deflation was measured at -0.6 percent year to year and -0.2 percent month to month. – There are still no signs of deflation processes coming to a halt, though they have admittedly not had a negative impact on the economy thus far – expert of Employers of Poland Łukasz Kozłowski comments GUS figures.
We find ourselves in an unusual situation, as decreased prices are usually a symptom of a bad economic situation. Meanwhile, GDP dynamics maintains a relatively satisfactory value. For this reason, the Monetary Policy Council is faced with a serious dilemma – on the one hand, the inflation index has remained significantly below the outlined goals for quite some time, but in spite of this, Polish economy finds itself in an upturn phase.
Decreased unemployment, increased nominal wages, as well as the recently accelerating dynamics of monetary demand should – gradually – give an increasingly strong impulse for price growth. Hence the uncertainty whether further interest rate decreases are needed. Deflation is to a significant degree fueled by external factors, mostly falling crude oil prices on global markets, but it is worth to pay attention to the rapid decrease in the base inflation dynamic index after the exclusion of food and energy process in October. This means that the decrease in consumer prices does not result solely form factors beyond the control of Poland’s monetary authorities.
The publication of the base inflation data for November may be of key importance for the future direction of Poland’s monetary policy – if tendencies signaled last month continue, the Monetary Policy Council should be significantly more willing to lower interest rates.
Łukasz Kozłowski, expert of Employers of Poland