Poland: Central Bank Preparing Ground For Higher CPI Projections, But Not Immediate Hikes

Our inflation models indicate that core inflation should stay elevated in 2H21 and 2022, which is against the NBP view. We worry that the MPC pays too much attention to temporary factors regarding rising CPI. We also see that the MPC downplays: (1) incoming demand-side inflation pressure (coming from reopening in 2H21, post-pandemic recovery, and labor market strengthening, as well as a Keynesian impulse in 2022 from local fiscal program – “The Polish Deal” and EU Recovery Fund), and (2) structural inflationary factors, ie, consumption boom in the last few years and very weak private investments.

In our view further changes of the MPC bias should take place in the coming quarters. As time passes and with a GDP recovery, the MPC should become less worried about GDP and may hike to prevent elevated CPI from staying for longer. We see an initial hike before the end of this year (around the November projection), but not in July on the occasion of the next projection. The NBP governor's press conference on Friday should shed more light on the current MPC bias.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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