Inflation on track, industrial output steady
Macroeconomic indicators released last week yielded mixed results: inflation is finally on the way down, but industrial output isn't quite where it should be.
Though analysts disagree about the length of time Poland will have to wait before inflation recedes from double-digit territory, March's 10.3% annual figure was the first actual decrease since June 1999.
"This is the beginning of the period of declining inflation," said Witold Orlowski, an economist at the Independent Institute of Economic Research (NOBE).
Economists expect that tightened monetary policy, under which the central bank increased key interest rates by up to 450 basis points in the fall of 1999, and the resultant drop in consumer demand, will continue pushing down the price growth rate.
Investment bank ING Barings is forecasting 10.01% inflation in April and 10.05% in May, with inflation down to 9.73% and 9.9% in June and July respectively.
"And then a sharp fall in inflation until the end of the year," said Maciej Reluga, an ING Barings economist, who put year-on-year inflation for December 2000 at 6.9%, a notch above the government's year-end inflation target of 6.8%.
Though ING adjusted its figures slightly upward after March's 10.3% came in higher than the 10.1% it was expecting, Reluga said adjustments in the weighting of the consumer price index's (CPI) basket of components also pushed up predictions. Food prices, for example, now account for 30.44% of overall inflation figures instead of the previous 31.62%. Non-food goods, on the other hand, now have slightly more inflationary impact with 31.12% of the basket, up from 30.63%.
The actual CPI breakdown didn't surprise analysts, however.
"As usual, the rate of growth for food prices fell slightly and the rate for services and non-food goods increased," Reluga said.
Prices consumers paid for food increased 0.9% in March from February vs. the 1.1% monthly rise of the previous month. Compared to March 1999, food prices were up 9.2%. Service prices were up 1% from February and 10.7% over the previous year.
Fuel price growth was largely responsible for high service prices, Orlowski said.
Industrial output, last week's other key macroeconomic data released by the Central Statistical Office (GUS), didn't see the stellar growth hoped for, yet still rose 6.8% since March 1999 and 11.5% from February 2000.
"We expected around 10% growth," Reluga said. "It seems that we underestimated the base effect because there was a strong industrial output rise in March 1999 by 22% month (on) month."
In line with this year's positive export figures and domestic demand, ING Barings expects output to rise as soon as April as long as the figures are adjusted for that month's holidays to 8.3% annually and up to 9.8% for May. Production should increase by an average of 10% in 2000, Reluga said.
In fact, it's projected to have already grown by 6% in the first quarter of the year, Orlowski said.
At the same time, he doesn't expect March's relatively low production figures to put pressure on the central bank to balk on its stated commitment to tight monetary policy. "I guess everybody will wait and see because most likely the April numbers will be better," he said. "By the way, 7% is not bad," rounding up the March industrial output figure of 6.8%.
Orlowski added that production could be faring better than figures indicate.
"There is a part of the industrial components that is highly volatile," he said. The component known as "other transport equipment," which takes into account mostly production in the shipbuilding industry, saw a 30% drop in real terms in the March data, he said. Though only several ships are built in Poland each year, a slowdown in their production can overshadow increased production in other areas. Eliminate this component for the sake of comparison and the industrial output figure is at least 1% higher, Orlowski said.
The producer price index (PPI) published alongside industrial output data also showed an economy headed in the right direction, economists said. Producer prices slowed to 7.4% year-on-year growth in March from 8.1% in February.
"It bodes well for inflation in the coming months," Reluga said, noting the numbers are consistent with lower production and a strong zloty.
