Divergence between Poland’s inflation and labor market persists, NBP likely to begin rate cuts in 2017

The recently released labor market data and the HICP data for Poland clearly underlined the persistent divergence between inflation and the labor market. In September, Poland’s labor data continued to be solid in September. The country added 10,000 jobs. However, wage growth continued to be muted. Wages rose just 0.1 percent sequentially as compared with market projections of a rise of 0.7 percent. On a year-on-year basis, wage growth dropped below the 4 percent mark.

Significantly, the Polish inflation data do not show any tendency to rise even after two years of decent employment growth. The underlying CPI trend is vital to track as observed year-on-year deflation in Poland is narrowing, and is expected to narrow more in the months ahead due to the base effect of energy and commodity prices.

Poland’s HICP deflation narrowed to -0.2 percent in September from -0.5 percent year-on-year in August. However, such data could be misleading. Talk regarding accelerating core inflation has put a hold on easing of monetary policy throughout the region. However, the National Bank of Poland is expected to re-evaluate its position after the subdued GDP data for the second half of 2016 comes, noted Commerzbank in a research note.

“We expect fresh rate cuts again in 2017”, added Commerzbank.