Poland’s ‘Extraordinary’ Inflation Surge Stokes Rate-Hike Bets

(Bloomberg) --

Polish inflation, already the fastest in two decades, topped analyst estimates to hit another fresh high -- boosting expectations that the central bank will raise interest rates next week.

Consumer prices jumped 6.8% from a year earlier in October compared with September’s 5.9% gain, preliminary data released Friday showed. None of the 22 economists polled by Bloomberg predicted such a steep acceleration.

“This price-surge dynamic is extraordinary,” said Monika Kurtek, chief economist at Bank Pocztowy. “It’s an unquestionable argument for a rate hike next week as we’re witnessing a spillover effect to all price categories, threatening excessive inflation that will stay for quite a long time.”

Poland surprised markets this month by becoming eastern Europe’s last major economy to lift borrowing costs in the face of soaring prices. While central bank Governor Adam Glapinski wouldn’t say whether the move marked the start of a monetary-tightening cycle, the continuing ramp-up in inflation is prompting calls for just that -- even as the pandemic worsens once again.

Polish Rate Rise Brought Forward to 4Q 2021: Bloomberg Survey

Ten of 12 economists surveyed by Bloomberg before bank’s Nov. 3 meeting foresee a rate hike -- either by 25 or 50 basis points. Only two see the benchmark staying at 0.5%.

For hawks on the Monetary Policy Council, the risks are clear.

“Inflation is persistently elevated and price expectations are at risk of becoming unanchored,” Lukasz Hardt said this week, suggesting November projections will reveal a “significantly” higher path for inflation.

“The central bank has no other option but to continue raising interest rates or hurt the economy’s long-term growth prospects,” he said, predicting a motion for a rate increase will be submitted at the next meeting.

• The zloty extended gains against the euro on Friday on expectations for higher rates
• The inflation breakdown revealed the root of the advance was the same issue gripping much of Europe right now: fuel costs, which rocketed up by 34%

Despite the unexpectedly large jump in the inflation rate, price growth could yet get much quicker. A survey by consulting firm Grant Thornton warns of a possible acceleration to 8%-9% next year as more than two thirds of large and medium-sized companies increase prices

“A rate increase next week is almost certain,” analysts at Mbank said in an emailed report to clients.

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