Polish inflation likely to surpass 2.5 pct target by Q2 2018, NBP likely to hike rate by 25bps by end-2018

Poland’s core inflation weakened in October by a full 0.2 percentage point to just 0.8 percent year-on-year. Given this, one would have imagined that MPC hawks in the nation have gone all quiet for the time, noted Commerzbank in a research report. However, at least two hawks, Eugeniusz Gatnar and Lukasz Hardt have issued fresh warnings this week that rates might have to be raised by the first quarter next year. According to Gatnar, inflation is expected to average 2.3 percent in 2018 as per NBP models. It would thus take only a little bit of pressure for inflation to exceed target.

Gartnar noted that recent trends in coal and energy prices might prove highly inflationary, and that energy firms are already lobbying with regulators for permission to increase tariffs, which could also lead to an overshooting of the target.

“We also foresee year-on-year inflation exceeding the 2.5 percent target by Q2 and staying above target until late-2018. This would occur even if the month-on-month rate of price increase were to soften from the present 0.25 percent to 0.15 percent a month”, added Commerzbank.

According to Commerzbank, the Polish central bank might hike its interest rate by 25 basis points before the end of 2018. The EUR/PLN pair is expected to gradually rise through 2018 despite such a hike.

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