Inflation still falling, but are high interest rates crushing the economy?

Inflation dropped to a another record low in June. The Central Statistical Office (GUS) said on Monday that annual inflation fell to 1.6% last month from May's 1.9%, exactly in line with analyst forecasts. Prices fell by 0.4%, month-on-month. GUS said the food prices category showed the steepest fall year-on-year last month at 1.3%. Clothing prices were down 0.9% and transportation costs fell 0.2%. "It is a good number, showing that inflation is continuing to undershoot the central bank's target," said Gavin Gray, senior emerging markets economist at HSBC Investment Bank in London. Analysts said the data confirmed that price pressures have evaporated from the stagnating economy as high real interest rates depress investment and record unemployment eliminate cost pressures on producers. However there are no expectations of a rate cut. Central bankers warned that the plunge in price growth during the first half of this year would taper off in coming months as seasonal factors wane and the zloty's recent weakness increases imported inflation. "It is good inflation fell a bit more, but such a low level is caused by seasonally low food prices and the consumer price index will probably start to increase from July or August," said Andrzej Bratkowski, the deputy director of the central bank. (Reuters)