Governor of NBP, Professor Adam Glapiński in „Financial Times”

Inflation data not worrying, says Poland’s central bank chief.

Adam Glapinski also notes there is ‘no sign’ of property bubbles fuelled by low interest rates

James Shotter in Warsaw

Poland’s central bank governor has dismissed short-term concerns over inflation, even as other central banks in the region have begun to raise interest rates to combat a surge in prices. Adam Glapinski said the data was not currently “worrying”, noting that inflation was partly driven by transient and external factors such as base effects, and fuel prices. Currently the second highest in the EU, Polish year-on-year inflation hit 4.7 per cent in May, before easing to 4.4 per cent in June.

“When we subtract from headline inflation the impact of regulatory and supply-side factors we get inflation close to 2.5 per cent, which is the midpoint of our inflation target,” he told the Financial Times. “So at the moment, there is no cause for alarm, especially as we also expect headline inflation to fall.”

Inflation has rebounded in many countries as pandemic restrictions are lifted, prompting some economists to call for central banks to wind down the stimulus measures adopted during the crisis. Central banks in Hungary and the Czech Republic both raised rates last month.
Glapinski said that the central bank, Narodowy Bank Polski, would watch “very carefully” for signs that rising wages were driving up prices as the economy accelerates after pandemic lockdowns. He expects Poland’s economy to grow more than 5 per cent next year.
“If we see that there is a tendency that in a few quarters this rise in prices could be driven by these demand-side factors, then we will act. When will it happen? It’s hard to say precisely, but rather not earlier than in the autumn of this year. Or maybe only halfway through next year,” he said.

“Our approach is similar to that of the Federal Reserve, or the ECB: we are waiting for the economic recovery to become certain and solid, and then we will observe whether there is a risk of a rise in inflation. And we certainly won’t hesitate: we will act immediately as soon as it is necessary.”

Some economists argue the NBP should already be taking steps to tame inflation, as Poland’s labour market is showing signs of tightness. Unemployment, standing at 3.8 per cent of the workforce, is among the lowest in the EU, according to Eurostat.
“We have a very low unemployment rate, which is putting pressure on wages. And on top of this, the Polish Deal [a government programme of tax and spending pledges] will boost demand,” said Alicja Defratyka, an economist at
She added: “I think that inflation is likely to be between 4.5 per cent and 5 per cent by the end of this year, and it could be even higher if all the measures proposed in the Polish Deal come into force.”

Glapinski said the NBP did not have “any specific concerns” about the labour market, and that the inflow of workers from neighbouring Ukraine and Belarus would “certainly be enough to meet the growing demand for labour” in coming years.

“Of course we are watching to see whether any bottlenecks occur in the labour market, but at the moment we don’t have any excessive pressure on wages. Wages are rising — but more slowly than labour productivity. Unit labour costs are not rising,” he said.

He added: “The worst thing that could happen would be a wage-price spiral but such a risk is very limited. We don’t have this, and at the moment we certainly don’t see it happening in the coming quarters. We don’t see it happening next year either.”

Economists have also raised concerns about ultra-loose monetary policy fuelling bubbles in the real estate and finance sectors. However, Glapinski said that Poland’s banks were well-capitalised, and that the real estate market was not overheating.

“At the moment there is no sign of bubbles in the real estate sector that are fuelled by low interest rates. And we don’t expect it,” he said.

“Bear in mind that these low interest rates have only been in place for a relatively very short time, and according to the market expectations next year we will already start to leave this territory. And the cycles in real estate are much longer.”