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Citi warns that expensive energy could weigh on the zloty in November
Higher energy prices are increasingly feeding into prices, but Poland still stands out in the region
In neighboring countries, the first signs are appearing that the energy shock is starting to spread to other price categories. In Poland, the picture is less clear-cut, Citi economists say. For people who exchange money or live on income in foreign currencies, that matters, because a weaker zloty can over time push up the cost of imports and services.
Economists point out that each additional month of high energy prices raises the risk that inflationary pressure will broaden. So far, the main driver of price growth has been fuel, but now the key question is whether more expensive fuel will also feed through into other groups of goods and services.
In the authors’ view, some lower-inflation categories are still increasing their share in the basket. If 3,5 proc. is used as the threshold, the upper limit of the RPP’s target, then inflation below that level accounts for 57 proc. of the HICP core inflation basket. Three months ago, it was about 52 proc.
The gap compared with the Czech Republic and Hungary is clear. There, over the same period, the shares rose instead of falling. That suggests that, for now, there is no strong spillover of the energy shock into other price categories in Poland.
The NBP also sees a mixed picture in core inflation
Economists are also pointing to labor-intensive services inflation. Its decline is still continuing, and so far there are no signs of a rebound. That matters because services usually react more slowly than fuel or food prices and show how broadly price pressure is spreading through the economy.
At the same time, less favorable signals are emerging. For a long time, services were pushing inflation higher, while cheaper goods were moving in the opposite direction, mainly thanks to competition from low-cost imports from Asia. Now that downward move in non-energy goods prices is gradually reversing.
The authors of the report link this to rising production costs globally and a weaker złoty. They expect the process may intensify in the months ahead as well. For households, that means the risk that imported goods and some services will stop getting cheaper as quickly as before.
Also worrying is core inflation, a measure that shows the trend in prices after excluding factors beyond the central bank’s control. NBP tracks four such measures. In September, one improved, but for the others the picture is steadily worsening.
The report also stressed that so far the RPP had assumed there would be no second-round effects, meaning a situation in which more expensive energy and fuel feed into other prices, such as services and goods. Economists say, however, that the situation is gradually changing. In their view, another month of high energy prices increases the risk of a further broadening of inflationary pressure, and the RPP’s November decision may require a stronger justification.
They also point to the new NBP projection, based on the current legal framework, meaning with the CPN program expiring in January. According to economists, it may show inflation approaching 5 proc. at the start of the year and remaining clearly above the target for the next several quarters.
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