CPI inflation increase takes analysts by surprise

This result was above analysts' expectations and outside the central bank's target range of 1.5-3.5%. Analyst claim that coupled with continuing wage pressures, the data will give ammunition to the more hawkish members of the central bank's monetary policy council in their push for an interest rate hike at its next meeting this month. However, most observers predict the council will keep the rates steady pending more data, and will most likely raise interest rates next month. The recent spike in CPI inflation, which stood at just 1.5% in August, is being mainly driven by rising fuel and food prices, but core inflation was also up in November, by 0.2% to 1.6%. "By the end of the year, inflation will rise to at least 4.0% y/y, and will continue rising through Q1 2008 before stabilizing in Q2 and softening in the second half," says Grzegorz Maliszewski, economist at Millennium Bank. "Interest rates will rise to 5.75% in May from 5.0% at the moment," he added. (Puls Biznesu, p. 13; Rzeczpospolita, p, B24; Gazeta Wyborcza, p. 27)