Poland Inflation


Inflation reaches highest level in almost a decade

In May, consumer prices increased 0.6% over the previous month, which was only a notch above the 0.5% price rise observed in April. According to the Central Statistics Office (GUS), the monthly reading reflected a substantial increase in food prices (+1.1% month-on-month) as well as higher prices for clothing and footwear (+1.9% mom). As a result, annual headline inflation jumped from 4.5% in April to 5.0% in May, which surprised market analysts who had predicted inflation to accelerate only a notch to 4.6%. With the May increase, inflation rose to its highest level since August 2001, far exceeding the Central Bank's target of 2.5% with a tolerance margin of 1.0 percentage point. The recent surge in inflation adds pressure on monetary authorities to further tighten the reins. So far, the Central Bank has raised interest rates a cumulative 100 basis points. The Bank started to tighten its policy at the beginning of the year and the effects should soon begin to curb the dynamics of price growth. In fact, many analysts interpret May's reading as a peak in inflation, which has been accelerating since November 2010. According to the Inflation Report from March 2011, the Central Bank estimates that inflation will end the year at 3.2%, before easing to 2.8% in 2012.


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