Polish central bank likely to hike interest rate in Q4 2018

Inflation in Poland is expected to drop at the start of 2018, mainly because of base effects, noted Erste Group Research. Inflation is likely to come back to an upward trend throughout 2018 and might rise even above target in the middle of the year. However, toward the end of 2018, inflation is expected to decelerate.

So far, the robust wage growth has not translated into stronger demand pressure as core rate continues to be low. But additional acceleration of wage growth should put upward pressure on service inflation and core inflation is expected to rise gradually. Rising prices of oil and food are pro-inflationary and contributed the most to inflation figures in 2017. Only ongoing dynamic growth of food and energy prices might contribute to the wage pressure and push inflation more than 3 percent next year, stated Ertse Group Research.

As headline inflation is likely to ease by the end of this year, the MPC is expected to stay comparatively dovish and keep the rhetoric of rate stability in months ahead. Throughout the year, MPC would be gradually rising though. Additional tightening on the labor market, particularly dynamic growth of wages, should translate into rising demand pressure. The risks for inflation exceeding the target are in the development of food and oil prices, the continued growth of which would add to the headline figure.

“Currently we expect a rate hike in 4Q18, only if the inflationary expectations significantly increase and the threat of overshooting the target is substantial”, added Erste Group Research.

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