Falling inflation worries government
By : Jeffrey Sparshott
Year-on-year inflation registered at 6.6% in February, falling below market expectations and landing at a level that could contribute to mounting budget woes. Poland's Central Statistical Office (GUS) released February's consumer price index figures Thursday.
A historically strong zloty helped keep prices down, especially on tradable goods and imports, said Krzysztof Rybinski, chief economist with ING Barings. "But the outlook is not as bright as at first glance," he said, noting that costs for services, which are not effected by the currency's strength on international markets, are still growing at a steady pace.
Nevertheless, the low inflation figures will pressure the Monetary Policy Council (RPP) to lower interest rates when its board meets on March 27. "Certainly there will be pressure to cut rates in March," Rybinski said. "At this stage, however, we think April (is) more likely."
The RPP lopped 1% off interest rates in February, its first cut in a year, citing a significant decrease in consumer and producer price growth, a narrowing current account deficit, and falling growth of credit and consumer loans, coupled with growth of deposits. So far in 2001, inflation has risen 0.9% compared with 2.7% during the first two months of last year.
While slowing inflation might be a positive sign for the RPP, Economy Minister Jaroslaw Bauc sounded a note of caution for the budget last week. Inflation is coming in below government projections, meaning revenues will be lower than expected, while most costs are fixed, Rybinski explained.
"The budget has already been built on optimistic assumptions," he said. "We are more and more afraid that by mid-year the government may hit more than 100% of its deficit target."
