Oil price insulated

The price of oil has rocketed by 60 percent this year, and as crude prices edge closer to $70 per barrel, consumers worldwide are beginning to feel the pinch. The US is a case in point. In July, US consumer prices increased 0.5 percent on June, the biggest monthly rise since April. Year-on-year, US inflation hit a troubling 3.1 percent, according to the US Department of Labor.

The effect on the Polish economy so far, however, has been minimal. Drivers have paid the price for dearer oil in more expensive fill-ups at the pump - petrol prices in Poland are the highest in the CEE region. Yet inflation remains lower than the Monetary Policy Council's targets, at 1.3 percent year-on-year, meaning providers of goods and services which depend on oil and petrol aren't passing the higher costs of fuel onto their customers. Experts say tougher competition in the transport services market, steeply lower food prices, and a strong złoty versus the dollar and euro are the most important factors buffering Polish consumers.

"All the competition in transport and logistics means that raising prices is a very risky move," says Urszula Cieœlak, a fuel market analyst for oil market monitoring firm Reflex. "So as long as they can, these companies move in a range of prices which ensures their costs are covered, and give up a bit of their own profits."

Transport companies can't continue to slice their margins thinner and thinner forever though, and if oil prices continue to push upwards at the same rate, by mid-autumn, says Cieœlak, transport could start costing more, but not significantly. "It will be a rise of a couple groszy," she says.

Ryszard Petru, chief economist at Bank BPH, doesn't expect that to have a major effect on inflation. "Transport prices are only 8.8 percent of the CPI basket," he says. He contends that food prices, which make up 30 percent of the basket, have a much bigger influence on inflation. "The food-price drops were very huge, they were much stronger [than the rises in oil-prices]."

A good harvest, much lower government intervention prices (the prices at which government agencies are required to begin buying a commodity), as well as  the złoty's strength against the euro this year have led to a fall of some 50 percent in the price of flour. "The strong złoty also tempered the growth of transportation prices," Petru adds, but warns: "However, in my view, this effect will not be continued." Thus, he expects high fuel prices will begin to show in inflation figures by the end of the year, but says Polish businesspeople have little to fear.

"There is something to worry about, however, the threat for the Polish economy is much lower than for the US economy," he argues. "Even if we see $75 [per barrel] by the end of the year, it will have some effect, but it will not be the main worry of Polish entrepreneurs."