Bank PKO BP economists forecast that inflation in Poland will soon peak at 16% on an annual basis. In response, the Monetary Policy Council will raise interest rates to 7 %.

According to PKO BP analysts in their latest macroeconomic forecast, a decline in CPI inflation to below 10% y/y is only possible at the end of next year. Even extending the Anti-Inflation Shield until the end of 2022 will not help much as the impact of the Russian invasion and various economic shocks on the economy are too high.

“The strongly pro-inflationary effects of Russian aggression are driving up inflation forecasts for 2022-2023. Due to strong inertia of price processes, a decline in CPI inflation to a single-digit level is likely only at the end of 2023, even assuming that the Anti-Inflation Shield is extended”, PKO BP predicts in its latest Economic Quarterly.

NBP assumes that the most likely scenario is to keep the Shield in place until the end of the year. According to current arrangements, it is supposed to operate until October.

In its analyses, PKO BP assumes inflation at 15.5% year-on-year in July, with a peak in August at around 16%. After that, inflation is expected to fall slowly, although it is possible that the annual figure in the first quarter of next year will be higher than it was at the end of 2022.

This is because PKO BP assumes January 2023 as the first month when the Anti-Inflation Shield will cease to operate. However, this will only be a statistical disturbance, due to the increase in prices by VAT, which is now reduced for food and fuel. It is also possible that in the coming year, (an election year), the Shield will still be in operation, which would mean that the timing of the rebound and the addition of VAT to prices would be postponed.

PKO BP expects the Monetary Policy Council to raise rates twice at 50 basis points each in July and September. Only from the second half of next year, PKO BP experts expect a gradual decrease in interest rates. The first rate cut, by 50 bps, is expected in Q3 2023.

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