Food prices drop, inflation expected to fall to 7%, RPP still has doubts

The prices of food and non-alcoholic drinks fell by 0.1% in the first half of February, announced the Central Statistics Office (GUS) and Finance Ministry now expects inflation to drop to 7% this month. Iwona Pugacewicz-Kowalska from the CDM Pekao SA brokerage said the drop in food prices was caused by low domestic demand, weakened by high unemployment rate and slowly rising wages. Moreover, the government decided to follow the advice of the Monetary Policy Council (RPP) and many analysts and allow for limited non-tariff import of grain. The good news feed hopes for an interest rate cut by RPP. Analysts are not certain, though, whether RPP will make such a move as soon as tomorrow, when it begins a two-day meeting. They suggested that RPP might be concerned about the budget, and poor Social Insurance Company (ZUS) condition. Analysts also said, that compensation payments for WW II slave laborers, totaling some zl.10 billion might pose new inflation threat. (Rzeczpospolita, 24-25 II, p.B2; Gazeta Wyborcza, p.22) M.K.