Mikołaj Fidziński, Gazeta.pl: Inflation in October, according to a quick estimate by the Central Statistical Office, was 6.8%. Surprise?
Raffaei Beneke, Chief Economist at ING Bank Śląski: We expect 6.5%, but these surprises have been regular for some time. Probably because, according to us, it’s already about 70 percent. Prices in the inflation basket are rising.
Inflation goes like a piston.
This is widespread inflation. These aren’t just supply shocks, they’re inflation spreading through the economy. This means that it will last and will take several years to master. It requires more substantial price increases.
Therefore, the patient’s condition is serious. This is already a vortex of inflation, are the effects of the second round already visible?
In my opinion, this may be the case in some sectors.
what kind?
The first candidate may be, for example, gastronomy or other sectors where margins are low and higher wages quickly begin to turn into prices. It can also be exacerbated by recovery after an epidemic recession.
We also hear from labor market brokers that in some industries, where there are the biggest problems with hiring employees, employees begin to include a link to inflation in their pay terms in their contracts. This is very annoying.
In my opinion, the effects of the second round are already taking place. NBP surveys already indicate that 71 percent of companies plan to raise wages. On the other hand, on the part of our companies and business contacts, we are noticing waves of leading price increases, and we expect another increase in costs. This means that the spiral of wages and prices has unfortunately closed. It happened faster than expected.
This indicates a lack of confidence in the temporary nature of inflation. The central bank missed the moment to take precautionary action. I’m afraid it will have to keep up with inflation by raising interest rates higher than we think today.
- Read more about inflation in Poland on the site Gazeta.pl
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So, on November 3rd, during the Monetary Policy Board meeting, should we expect another rate hike?
In fact, since the October decision we have already said that the rate hike will take place in November. A 40 basis point rise in October is not enough compared to inflation expectations and what the neighbors are doing, as well as rising inflation expectations.
To prevent the effects of the second round and a further increase in inflation expectations, interest rate increases must be large and cumulative initially. The economy and families must show it bank The central bank will not allow inflation to rise significantly.
40 basis points increase. She was vigilant. The next event should be in November. In December, it will probably be more difficult to raise prices, because the impact of the connection is less. In January and February, more than half of the MPC’s composition changed. Therefore, there will be another opportunity to raise interest rates in March. Given this, I think the MPC should not wait, because the next opportunity will be in six months.
I think the chances of prices rising 0.50 percentage point in November, not just 0.25 percentage point, have increased.
In the end, what level can you reach?
2% plus. We’re looking at how high inflation expectations are and what neighboring central banks are doing. We think those 2 percent. It is a level that, on the one hand, will send a signal to the economy that the Central Bank is trying to control inflation, and on the other hand, it may achieve the Council’s goal, that is, to maintain a weak zloty exchange rate.
2 percent will remain below the target rate in the region. On the other hand, limiting higher increases is what the ECB does. It won’t raise rates until 2023. So, looking at the MPC interaction function, we’re assuming that target rate is 2% or a little more.
Inflation risks narrowing. Outside of Poland, there is an increase in the intensity of disruptions in supply chains. Inflation surprises appear in developed countries. So we will import inflation. Besides, as I said, our domestic inflation is spreading throughout the economy and inflation expectations are rising.
In addition, in 2022 we will have a financial incentive. Therefore, measures must be determined so that inflation does not accelerate and remains with us at a high level for a long time. Then more steps will be required in the future. This would harm economic growth and competitiveness.
Now the inflation rate is 6.8%. How about November, December, next year? The seven will probably break, but maybe there will be eight as well?
In our forecasts for November, we have inflation of 7.2 percent, in December of 7.4 percent, and in the first quarter of 2022 – 7 percent. Then it drops significantly, even to about 3%, but this should not be a reason to calm down. This would be due to statistical implications – among other things, current increases in fuel or food prices.
However, at the same time, core inflation – that is, the most volatile net prices – will remain at a level of more than 4%. It’s very important! While this year has seen several external shocks or the impact of managed prices, inflation in 2022 will be severely affected by demand and wage pressures. This is more dangerous. It is also an argument for the central bank to act. High inflation can increase the impact of wages and force target moves to be larger.
What is also important is that in 2022 wages will grow faster than productivity. This was not the case in the Polish economy for a long time. It is very inflated.
You talked about the financial drive in 2022. I understand it’s about the Polish deal, but is it about anything else?
In our view, budget assumptions show that the government is more likely to use the trick of financing spending without increasing the deficit. We are concerned that some beneficiaries will get bonds that they sell to themselves and have money to spend.
Who can get these bonds?
These funds can be obtained, for example, by public institutions, perhaps for example the National Health Fund, one of the ministries or central funds. They will acquire these bonds, sell them in the market, and have the means to spend. And that doesn’t show up in deficit plans for next year, but in debt that’s growing faster than deficits, it does.
We estimate that the fiscal motive in 2022 will be 5 percent. PKB It will be higher than it was in 2021. This includes the planned deficit of the entire fiscal sector and the trick of converting bonds for spending.
I would like to remind you that we are operating in conditions where inflation is at its highest level in 20 years and it is necessary to pause a bit, and act in another way.
Is the government playing with fire?
Yes, I think this is playing with fire. We are in such a stage where inflation is accelerating and it is not only due to good economic conditions, but also due to the structure of GDP. Other countries are slowly tightening their fiscal belts. USA and Great Britain – they are tightening the financial impulse very quickly. And they have a lower inflation rate than Poland.
I have the impression that no one in Poland is responsible for this inflation. The MPC finally raised rates in October, but we’ve been hearing for months that they can’t do anything about inflation. Moreover, President Glapinsky made it clear that if you are looking for ways to fight inflation, that fits into the government’s fiscal policy. On the other hand, from the government, even from the mouth of Prime Minister Morawiki, came the exact opposite message – that the NBP should take care of it. Inflation has been completely erratic for a long time.
Both elements mix politics too much [polityka fiskalna rządu i polityka pieniężna NBP – red.] They care about economic growth and don’t care enough about inflation. This is very important – you have to sacrifice some economic conditions today to control inflation and achieve strong economic growth within a few years. Unfortunately, economic politicians do not subscribe to this mindset.
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