Surprise rise

Inflation and corporate wage figures released by the Central Statistical Office (GUS) surprised the market last week, as both came in higher than expected.

Poland's core annual inflation rate rose by 1.1 percent on July 2005 - significantly higher than the 0.8 percent anticipated by the market. While month-on-month prices were expected to drop 0.3 percent in July, no change was recorded on June's figure. Economists now say that the accelerated inflation brings closer to reality the possibility that the central bank will raise interest rates this year.

"The inflation figure is quite a bit higher than consensus and up from June. It's the first time in a while we see a marked increase in headline CPI inflation, and it means there is now a reasonable chance of a hike this year," said Olivier Desbarres, an economist at Credit Suisse, London. "I'd say the chance of a hike this year is now 50-50, or even 60-40, in favor, whereas before it was more like 30-70."

Since inflation is still below the NBP's target however, the rate hike may not come at the next meeting of the Monetary Policy Council (RPP), Poland's rate-setting authority.

"Core inflation is still low, so if a hike materializes this year, it might not come until near the end of the fourth quarter. There is still no immediate sense of urgency," added Desbarres.

The RPP will be taking wages into account as well when it next meets to set rates, since it follows the data closely as an indication of price pressure. The average gross wage in Poland's corporate sector rose by 5.6 percent annually in July to zł.2,648.  The rise exceeded the 5.3 percent forecast by the market, and was up from a 4.5 percent year-on-year increase in June.

Economists from Citibank Handlowy bucked the market trend, however, and predicted higher wage growth. In their report, economists from the bank said: "Significant acceleration was related to one-off factors (extra bonus payment to miners) and therefore wages should slow down in [the] next months." (Reuters)