Poland Braces for Economic Challenges as Future Inflation Index Holds Steady

In a recent report released by the Bureau of Investments and Economic Cycles (BIEC), the Future Inflation Index (WPI) for February 2024 has shown no change compared to the previous month. The index, which forecasts changes in consumer goods and services prices several months in advance, has raised concerns as 82% of Polish households anticipate an increase in prices.

Notably, the WPI experienced a 0.5-point drop in January compared to December, signaling potential challenges in reducing inflation. The BIEC emphasizes the significance of the upcoming months, particularly the middle of the year, to determine the medium-term inflation trend. Factors such as energy price hikes for households, electricity cost shields for small and medium-sized enterprises, and the reduced VAT rate on essential food items will play a crucial role.

Manufacturing companies in Poland share a similar sentiment, with the WPI indicating consistent inflation expectations among representatives. The majority express intentions to raise prices, and smaller companies exhibit stronger inclinations towards price hikes. Labor costs, energy and fuel prices, and the costs of components and services are identified as key factors driving these intentions, with almost 90% of industrial processing sector managers pointing to labor costs.

BIEC notes that the inflation outlook is primarily influenced by internal factors within Poland, citing continuous consumption stimulation, monopolization in sectors like energy and banking, and the absence of labor market deregulation allowing free external labor inflow. While the war in Ukraine initially impacted inflation, its effects have since diminished, as evidenced by the Eurozone’s inflation returning to 2.9%.

Households’ expectations regarding inflation have remained relatively stable for three months, with 82% anticipating price increases. However, there is a shift in sentiment, with fewer people expecting faster price growth and a slight increase in those anticipating stabilization. The BIEC emphasizes that internal factors largely dictate Poland’s current inflation trends.

Looking ahead, the Central Statistical Office (GUS) is set to present a preliminary reading of Consumer Price Index (CPI) inflation for January on February 15. December’s CPI inflation stood at 6.2%, compared to 6.6% in November, highlighting the need for ongoing economic monitoring and adaptation to potential challenges in the coming months.