Polish Inflation Rate Probably Rose to 4-Year High: Week Ahead

By Monika Rozlal

July 14 (Bloomberg) -- Poland's inflation rate probably rose to the highest in four years in June as fuel, alcohol and tobacco prices rose, increasing pressure on the central bank to lift borrowing costs.

Inflation accelerated for a third month to 4.6 percent from 4.4 percent in May, according to the median estimate of 10 economists surveyed by Bloomberg. The Finance Ministry on July 1 forecast 4.5 percent. The report will be published by the Warsaw- based Central Statistics Office on July 15.

Accelerating price growth, combined with reports likely to show rising wages and employment, may prompt the central bank to raise the benchmark seven-day reference rate for a fifth time this year from 6 percent. Policy makers have lifted rates eight times in the past 15 months to damp consumer demand and cap inflation.

``Since food price growth is likely to lift the inflation rate above 5 percent and will keep it high for a longer time than the central bank forecasts, I believe there will be more than one rate hike this year,'' said Bartosz Pawlowski, a strategist at TD Securities in London, in an e-mail. ``The first one will come even before the October inflation outlook is published.''

Inflation has exceeded the Narodowy Bank Polski's 2.5 percent target since October last year.

Demands for higher wages have been spurred by rising fuel and food prices as well as a labor shortage. Economists surveyed by Bloomberg expect average corporate wage growth accelerated in June to 11 percent from annual 10.5 percent a month earlier.

The government forecasts 2008 economic growth at 5.5 percent.

Further Indications

June industrial output data, due on July 18, may also support expectations for interest rate increases. Economists forecast growth of 9.4 percent compared with 2.3 percent in May, when there were fewer working days than a year earlier.

The May current account deficit, to be published by the National Bank of Poland on July 15, widened to 1.64 billion euros ($2.57 billion) from 1.55 billion euros in April, according to the median forecast of 10 economists.

In last week's markets, the zloty set a new all-time high of 3.2612 per euro on July 11, a weekly gain of 1.6 percent. The zloty has gained almost 10 percent against the euro since the beginning of the year.

The yield on the 5.25 percent benchmark government bond due October 2017 fell 3.2 percent this week to 6.5 percent, while the yield on the 5 percent five-year benchmark bond due October 2013 slid 3.8 percent to 6.5 percent.

The benchmark WIG20 stock index lost 0.2 percent to 2,517.32 last week, a more than two-and-a-half year low. Polskie Gornictwo Naftowe i Gazownictwo SA climbed 6.2 percent as the gas monopoly announced plans to build new pipelines to Germany or Austria.

Publisher Agora SA tumbled 15.5 percent to 26.2 zloty, as 1.84 million shares from employee stock programs started trading on the Warsaw Stock Exchange.

The following is a list of important events in Poland this week:

Event Date
Sale of 13-week, 52-week T-bills July 14
June M3 money supply July 14
June inflation July 15
June corporate wages, employment July 15
May current account July 15
Dom Development press conference July 15
Telekomunikacja press conference July 16
June industrial output, PPI July 18

To contact the reporter on this story: Monika Rozlal in Warsaw at mrozlal@bloomberg.net