MNI INTERVIEW: Polish Data Underplays Price Pressures-Tyrowicz

Poland’s headline inflation data underplays significant upwards price pressures, and recent rate cuts will slow the pace of disinflation, National Bank of Poland’s Monetary Policy Council member Joanna Tyrowicz told MNI.

August’s 2.8% inflation print shows progress towards price stability, Tyrowicz said, but she added that rates need to rise to 5.75% to sustainably achieve the Bank’s 2.5% target. While Tyrowicz had earlier this year called for rates to rise to as high as 7.75%, she insisted that September's 25bps cut to 4.75% means that policy is now far less restrictive than required. (MNI EM NBP WATCH: Poland CenBank Lowers Rates By Quarter Point)

“My proposed pace of easing hardly matters. The fact that the current rate is 100 basis points below my terminal rate may threaten the pace of progress in further disinflation,” said Tyrowicz, frequently a lone hawkish voice among decision-makers. In July, when rates were cut by 25 basis points to 5.0% as inflation fell from 4.1% to 3.1%, she had called for a half-point hike, whereas in June she had argued for a 250bp increase instead of holding at 5.25%.

While annual headline inflation is now squarely within the NBP’s +/- 1% tolerance band, around 1.5 percentage points of the year-on-year decline seen between July and August can be attributed to pure base effects, while another 2 points is related to a strong exchange rate and low oil prices, Tyrowicz said in an interview.

DOMESTIC PRICE PRESSURE

“We still have elevated price growth in the domestic parts of the economy. Indeed, headline CPI currently packs in too many things and needs to be carefully unpacked before any meaningful inference. My reading of the unpacked detailed data, adjusting for various statistical glitches, is that we are not done with internal inflationary pressure and that in itself calls for a restrictive stance.” 

Price pressures are in large part being fuelled by still-unanchored inflation expectations, Tyrowicz said, enabled by robust wage growth, strong labour demand, and a relatively strong business cycle. 

“As one looks into industrial production, the moderate pace of growth in fact masks strong growth in some sectors, desynchronised cycles in many other sectors and a strong downward trend in energy use. Thus, while a high degree of uncertainty and a prolonged period of inflation still constrains companies, the real sector is in good shape,” she said.

“This is consistent with historically high wage growth, when adjusted for statistical glitches, and high labour demand in both manufacturing and service sectors. Even after ignoring the effects of the January hike to the minimum wage, annualised seasonally-adjusted real wage growth averages currently 6.3%, which is the highest figure on record. If we look at the entire payroll fund, to adjust for declining labour force, it’s 5.5% - the fourth highest number on record.”

Poland’s fiscal policy is not restrictive, and the global conditions are far more favourable than expected, Tyrowicz said.

“Fiscal policy is not obliged to assist in disinflation. Deficits were similar in 2024 and we did not see much acceleration in demand pressures. Obviously, we need to be cautious, if fiscal policy triggers permanent changes in demand that can require a monetary policy response.”