New inflation figures means new projection charts
Economy watchers had predicted that July inflation figures would rise above June's annual 10.2%. But 11.6% annual growth in consumer prices caused many to toss out their year-end projection charts yet again.
When the government first announced its year-end target of 5.4-6.8% annual inflation for December, economists nodded in agreement, although many calculated it could be achieved only at the high end or somewhere just above 7%.
Gradually, forecasts were revised upward to the high 7% and now some are even talking in the low 8% and even 9%.
Jacek Wisniewski, Amerbank's head of research, said that given July's disappointing figures, inflation should end the year at an annual 8.5-8.8%. He said that inflation has peaked and will drop next month, but Amerbank is waiting for second-half August food prices to be published in early September before it will even consider discussing an inflation forecast for August.
Following a spring drought, grain shortages and too much rain during the harvest season, higher prices for less food played a huge part in keeping inflation above forecasts, analysts said.
"The fundamental (determiner) of high inflation in Poland at the moment is food and oil," said James Owen, an economist with SG Bank. "Without food and oil, the situation is rather calm."
Food prices were expected to climb 0.4% in July, but were slightly higher at 0.7%, Wisniewski said.
As for oil, petrol prices fell in July, but didn't push down inflation as much as everyone had hoped, Owen said.
Another factor fueling July's inflation was an increase in service prices, specifically a rebalance of telephone tariffs in June and increases in electricity and cold water prices, analysts said. While the market had looked for a 0.5% hike in service prices, they were up 1.1%, Wisniewski said.
The decision of fixed-line telecom monopolist Telekomunikacja Polska (TPSA) to reduce long-distance calling rates while increasing local rates in line with Western European standards translated to 5% bigger phone bills in July. Electricity prices were up 1% and cold water prices 0.9% in the same month.
July's overall consumer price index (CPI) was 0.7% higher than the June CPI and an annual 11.6% was especially devastating considering that prices grew 2.3% on the month in July 1999, Wisniewski said.
But food prices notably for fruit, sugar, flour and bread are up even more at an annual 13.8% and 6% since the beginning of the year, he said.
Wisniewski expects the Monetary Policy Council (RPP) to raise key interest rates already at 17.5-21.5% as much as 150 basis points when it meets on Aug. 30.
But Wisniewski said the economy is still looking good in other areas. "The monetary situation is under control," he said, mentioning cash supply and wages. "Everything is under control except inflation and inflationary expectations. (The RPP) can use only one weapon: a rate hike."
