High year-end inflation worries hardly anyone
Given oil-price hikes, a weakened zloty and government-imposed tariffs on imported foodstuffs last year, Central Statistical Office (GUS) news last week that year-on-year inflation for December 1999 hit a higher-than-planned 9.8% raised only a few eyebrows.
Economists also said that they saw no worrying trend in the relatively high year-on-year inflation, and stressed that Poland is still on target to meet its 2000 inflation expectation of 5.4-6.8%.
Pierre Bergeron, head of economic research at Citibank (Poland), described the inflation figure released Monday as "clearly in line with market expectations," despite inflation in the final quarter of the year that was "much worse than what we were hoping for."
The National Bank of Poland (NBP) had originally set an inflation target for 1999 of 6.6-7.8%. But as oil prices hiked in late 1999 and government-imposed tariffs on food imports began to take their toll, the government was expected to upwardly revise its figure. Strife in the agriculture sector prompted the government to intervene in the food market and set minimum prices for some goods as well as impose tariffs on certain imports.
Taking those dynamics into consideration, economists said that the December year-on-year figure was not worrying.
"There is a lot of jazz concerning inflation, but it is not a catastrophe," said Dariusz Filar, chief economist with Bank Pekao.
Filar pointed out that the average inflation rate for 1999 of 7.3% was actually considerably lower than the 11% seen the previous year.
A year of weakening for the zloty also means that exports should benefit from their newfound competitiveness on world markets, Filar said. He said he hoped to see exports take over as "the driving force of the economy." The zloty lost more than 20% of its value against the dollar in 1999.
Citibank's Bergeron also said that forecasts for export sales look favorable. He said that some heartening news came from GUS's release last week of year-on-year industrial output for December. Industrial output rose 19.1% over that period.
"We were looking at 15%," Bergeron said. "That probably says that for the first time in nine months we could have had a positive growth for exports for December."
James Owen, an economist with SG Bank, said export-growth indicators were contradictory at the moment, but that everybody seemed to be nurturing the "feeling" that exports are indeed increasing.
"The key question is how much is due to domestic growth and how much is due to export growth," Owen said.
Before oil and food prices level off and begin to drop, he said, expect inflation to reach double digits in January and then start falling in the second quarter.
"I'm fairly optimistic provided oil prices don't shoot up further," Owen said.
Bergeron also said he expected inflation to increase to around 10% during the first quarter before pulling back later in the year. He forecast a chance of less than 20% that the year-on-year inflation rate would exceed 10.5%. If it does, he said, be ready for the Monetary Policy Council (RPP) to increase interest rates.
Owen is only predicting about a 25% chance of an interest rate increase.
The three analysts agreed that the target rate for inflation for 2000, 5.4-6.8%, is achievable, but only at the higher end. Owen said inflation would end the year slightly below 6.8%, while Bergeron and Filar estimate it will come in just below 7%.
"We're not going to get numbers in the first months of 2000," Bergeron said, "but we are looking for a much better second half of the year."
Poland is pushing for yearly decreases in inflation and an eventual 2.5% rate for 2007, as set by the European Monetary Union (EMU).
Alexander Stocks is a contributor to the WBJ.
