Bloomberg News

Polish Prices Surge Most Since 2001, Pressure Interest Rates

June 15, 2011

(Updates with Belka comments in fifth paragraph, zloty, bonds in seventh.)

June 15 (Bloomberg) -- Polish inflation accelerated in May to its fastest in almost a decade, suggesting the central bank may need to raise interest rates again in coming months.

Consumer prices rose 5 percent from a year earlier, after a 4.5 percent increase in April, the Central Statistical Office in Warsaw said today. The rate is the highest since August 2001 and exceeded the median estimate of 4.6 percent from 28 economists surveyed by Bloomberg. Prices advanced 0.6 percent on the month.

“This is bad news for the Monetary Policy Council,” Raffaella Tenconi, an economist at Bank of America Merrill Lynch in London, said by e-mail. “It adds to our call for a 25 basis- point hike in July, despite their desire to enter a pause.”

Policy makers around the world are battling to contain inflation spurred by rising food, commodity and energy costs. The European Central Bank, as well as central banks in Norway, Russia and Denmark, increased borrowing costs in the past two months in response to price pressures.

Polish rate setters “won’t panic” after the consumer price data, central bank Governor Marek Belka said on the website, according to the Polish newswire PAP. “More precise analysis will allow us to say whether the increase was definitely of a temporary or more lasting nature.”

Bond Yields Rise

Polish bond yields rose and the zloty pared declines after the inflation report.

The yield on two-year bonds advanced six basis points to 4.90 percent as of 3:18 p.m. in Warsaw. Two-year swaps that investors use to fix borrowing costs in the future gained 5 basis points to 5.16 percent. The zloty strengthened to 3.938 per euro after falling as low as 3.947 prior to the report.

The Narodowy Bank Polski raised its benchmark seven-day rate by a quarter percentage point to 4.5 percent on June 8, the fourth increase this year, to curb inflation that has remained above the central bank’s 2.5 percent target since October. Policy makers are concerned Poles will demand higher wages in the face of strong price growth.

Belka said last week the Monetary Policy Council would wait to see if this year’s rate increases will be sufficient to slow inflation to its medium-term target.

Radoslaw Bodys, a London-based strategist at UBS Investment Bank, said Polish interest rates “are simply too low.” The “optimal” rate is “close to 6 percent,” Bodys said in a note to clients after the data release.

Investors on the derivative market expect the central bank to raise interest rates two more times this year. Six-month forward rate agreements are trading 54 basis points above the three-month Warsaw interbank offered rate, down from 80 before the June rate decision, according to data compiled by Bloomberg.

Core Inflation

The breakdown of last month’s inflation figures shows price increases are due to items that can be influenced domestically and not only global factors, Bodys said.

“Importantly, while commodity prices remain an important driver of the headline, core inflation keeps accelerating,” he said. “In this environment it’s difficult to see inflation falling below 4.5 percent this year.”

Core inflation, which strips out volatile fuel and food prices, accelerated to 2.1 percent in April, the highest since February 2010. The rate may rise to 2.4 percent in May, Maja Goettig, chief economist at Bank BPH in Warsaw, said today.

“We were just stunned” by the May inflation figure, Goettig said by phone. While BPH’s “base scenario” calls for the next rate increase in September, “it cannot be ruled out that after seeing inflation at its highest since August 2001, the council may need to reconsider its wait-and-see plan.”

--With reporting by Barbara Sladkowska, Katya Andrusz and Piotr Skolimowski in Warsaw. Editors: David McQuaid, Willy Morris

To contact the reporters on this story: Monika Rozlal in Warsaw at

To contact the editor responsible for this story: Balazs Penz at

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