May rise in industrial output offset by dip in inflation rate
May's 10.0% annual inflation, after April's one-month dip from double digits at 9.8%, dashed expectations for continued easing of price growth.
However, SG Bank analyst James Owen noted that trying to read too much into the figure misses the inevitable: that April inflation was a bit "too good to be true," he said. A spring drought in Poland is already pushing up food prices, he said, and oil prices are going in the same direction.
The drought effect is going to push food-price growth even higher in the coming months, Owen said.
In fact, said Witold Chusc, a macro analyst with CDM Pekao Securities, wheat prices were 40% higher than the same time last year. The overall inflation index, which includes food, service, fuel and non-food goods, was up a monthly 0.7% after seeing a 0.4% rise in April.
However, "In my opinion, this is not the most important problem," Chusc said. "Now, we have a more important problem of inflation expectations among the people."
Whenever rising inflation begins to seem inevitable to consumers, it gives even more heat to consumer demand, which fuels inflation, since they buy as much as they can while prices are a bit lower than they'll soon be.
"Especially in Poland because of our history and hyperinflation," Chusc said. "I think that is the main task for the Monetary Policy Council (RPP), to reverse that tendency," he said.
He expects the RPP to seriously consider notching up interest rates, already as high as 21.5%, at Wednesday's meeting, but noted that the use of monetary tools will never solve the inflation problem.
"Only by reducing fiscal debt," Chusc said.
On a more positive note for economy watchers, however, were Friday's industrial output figures. In May, a 12.3% annual rise in output, up 7.9% from the previous month, was reassuring to those putting faith in Central Statistical Office (GUS) data (vs. the National Bank of Poland's conflicting data), which showed exports up 9.2% in the first four months of the year.
More evidence to the point, said Chusc, is that Polish car manufacturers sold 10% fewer vehicles than a year ago, yet produced the same number of cars. Last month's data showed the same trend, he added.
Owen offered other proof. Retail growth is slowing, he said, which points to a drop-off in domestic demand.
Though Owen sees a risk in rising interest rates after the RPP's meeting Wednesday, he doesn't think it's the most likely outcome.
