In January, prices fell by 1.3 percent compared to last year, show most recent GUS figures. – Despite deepening deflation, the Polish economy is coping rather well. The decrease of th main price index is still driven by falling prices of fuels and food, which seems favourable to some extent, as it restricts the costs for companies and increases households' purchasing powers. However, tasks of the monetary authorities include taking care of price stability – this will most likely be the deciding factor in an interest rate cut in March – comments Łukasz Kozłowski, expert of Employers of Poland.
It seems that despite the trend of decreasing goods and consumption service prices continuing for over half a year, its negative effects are not particularly strong. It is hard to talk of a deflation spiral, if the decrease of the main price index is driven exclusively by negative dynamics in two important product groups. The recently observed improvement in macroeconomic indexes, including a rapid increase of the PMI index in January, suggests that deflation is not making any significant harm and may even stimulate growth to some degree – via a positive supply impulse with regards to costs and increased purchasing power of households.
The Monetary Policy Council has thus far opposed a less stiff monetary policy as growth dynamics maintained a relatively high level. Deeper deflation jn January makes March interest rate cuts more likely – particularly as an new inflation projection will be available.
Łukasz Kozłowski, expert of Employers of Poland