Poland’s Shock Double-Digit Inflation Comes With Growth Warning

(Bloomberg) -- Polish inflation accelerated to a 22-year high, even as signs emerged that the outbreak of the war in neighboring Ukraine is starting to weigh on economic growth.

The surge in consumer prices by 10.9% in March from a year earlier boosted market expectations that the central bank will deliver its seventh straight interest-rate increase next week. Friday's reading beat all but one estimate in a Bloomberg survey of 21 economists.

A separate survey of purchasing managers showed manufacturing output and orders fell for the first time in more than a year due to instability tied to the conflict in Ukraine. More than 2 million refugees have fled to Poland since the war began, but some industries like transport and construction experienced worker shortages after Ukrainian staff went home to fight.

The central bank has been rapidly tightening policy since November and the government cut levies on everything from food to fuels in order to bring inflation under control. Governor Adam Glapinski said last month rates need to rise above the current 3.5% by another percentage point or more as the inflation outlook as the war threatens to drive prices higher.

“The Monetary Policy Council clearly still has a lot of room to act,” Monika Kurtek, chief economist at Bank Pocztowy said in a note on Friday. Her estimates show that inflation will remain above 10% for the rest of the year, even assuming that government measures remain in place.

“It will take at least another three years to bring inflation to the target” of 2.5%, she said. That could create a difficult situation for the central bank.

“A specific economic slowdown awaits us, with weaker exports and investments, as well as persistently strong consumer demand,” said Rafal Benecki, chief economist at ING Bank Slaski SA in Warsaw.