Bloomberg News

Polish Inflation Probably Slowed, Easing Pressure on Rates

July 13, 2011

(Updates zloty, bonds in 10th paragraph.)

July 13 (Bloomberg) -- Polish inflation probably slowed in June from the highest in almost a decade, easing pressure on the central bank to raise interest rates for a fifth time this year.

Consumer prices rose 4.8 percent from a year earlier, compared with 5 percent in May, according to the median estimate of 29 economists surveyed by Bloomberg News. Prices probably advanced 0.1 percent on the month. The Central Statistical Office will release the data at 2 p.m. today in Warsaw.

The figures support the central bank’s forecast that four interest rate increases earlier this year will be enough to slow consumer-price growth to the 2.5 percent target. Policy makers left the benchmark at 4.5 percent last week, saying they may raise rates again if prospects for meeting the goal worsen.

Inflation may have slowed because of “a deep decline in fuel prices as well as summer sales of clothes,” said Marcin Mrowiec, chief economist at Bank Pekao SA. The central bank may boost rates in September because “prices may rise again in coming months,” he said.

The central bank-led Monetary Policy Council holds its next rate meeting Sept. 6-7.

Crude oil prices fell 7.2 percent in June, paring their 12- month gain to 26 percent. Energy costs may drop further after the German newspaper Die Welt said this week that the European Central Bank wants to expand assistance to Italy, heightening speculation Europe’s sovereign-debt crisis will curb economic growth and demand for commodities.

“Further decline in external demand and commodities prices may prevent policy makers from raising interest rates for another month,” Mrowiec said.

East Europe Peers

Hungary’s central bank has kept its main rain at 6 percent since increases in November, December and January. Czech policy makers have kept their benchmark at 0.75 percent since May 2010.

Investors on the derivatives market expect another half percentage-point of rate increases this year. Six-month forward- rate agreements are trading 48 basis points above the three- month Warsaw interbank offered rate, down from 64 before the June rate increase, according to data compiled by Bloomberg.

The zloty weakened to 4.0326 per euro at 8:50 a.m. in Warsaw from 4.0296 late yesterday, falling for the sixth day in seven. The yield on two-year bonds rose to 4.87 percent in Warsaw, near a one-month high, from 4.84 percent yesterday.

Price growth probably peaked in May, when it reached the highest since August 2001, according to the Finance Ministry and central bank. Inflation will stay at “an elevated level” in the coming months, slowing to 4 percent at the end of the year, according to a central bank report published July 11.

Inflation Slows

The inflation rate fell for the first time in seven months in June. It will drop to 2.7 percent next year and 2.4 percent in 2013 as economic growth lags behind earlier predictions, the central bank said. Gross domestic product will expand 2.9 percent in 2013, down from a March projection of 3.1 percent, according to the report.

The bank’s forecast for a 4 percent inflation rate by Dec. 31 “supports a scenario of no rate increases through year-end, providing interest rates in the European Union are unchanged,” said Lukasz Tarnawa, chief economist at PKO Bank Polski SA. Price growth above 4 percent would trigger a quarter percentage- point increase, most likely in November, he said.

The European Central Bank raised its benchmark to 1.5 percent this week in its second quarter percentage-point increase since April.

--Editors: Willy Morris, Alan Crosby

To contact the reporters on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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