Salaries in the business sector increased by as much as 12.8% year on year in January. An increased consumer demand could pose a threat for inflation to start rising again.
Wages are growing three times faster than inflation. Analysts are surprised. The consensus forecast was that wage growth would be 10.9%. In December, this growth was 9.6%. In January, it accelerated significantly. On the other hand, inflation in January was 3.9% year on year.
Thus, the real wage growth is the highest since 2008. Due to wage increases, we may experience significant inflationary pressure, although we simultaneously observe a weakening of the labor market situation.
“January usually surprises positively in terms of wage data,” says Michał Stajniak, an XTB expert, in an interview with MarketNews24. “It’s important to remember that this is the result of higher bonuses paid in January, as well as a higher minimum wage. We can expect that in the coming months, wage growth will be lower.”
Year-over-year employment fell as expected by 0.2% year over year. On the other hand, it grew by 0.3% on a monthly basis, although less than the expected 0.4% month-to-month.
However, this is not the end of negative news regarding economic activity in Poland. Industrial production rebounded in January by 1.6% year over year and 2.3% month over month. These values are definitely smaller than expected, as growth at the level of 3.1% year over year and 3.8% month to month was expected. In December, however, we observed negative values in both cases. We continue to observe stagnation across Europe, which is reflected by the low readings of PMI indices.
PPI inflation is at a historic low of -9% year-over-year, with an expected -8.3% year-over-year and a previous level of -6.9% year-over-year. On a monthly basis, we have a decrease of 0.2% month over month, in line with expectations, but from a lower base.
“Looking from the perspective of the currency market, if there are no interest rate cuts in Poland, and the US Fed introduces such cuts in mid-year, the situation of the Polish zloty will be very interesting”, evaluates the XTB expert. “In such a situation, the dollar will cost below PLN 4, it may even be the level of PLN 3.70-3.80 per dollar, although this is not the base scenario.”
It was predicted that inflation would rise in the second half of the year due to the base effect, and it remained uncertain whether a higher VAT on food would be reinstated and by how much artificially lower energy prices would rise. January’s wage data are boosting these pro-inflationary expectations.
Do January data change the perspective on interest rates in Poland? Rather not. Wage data that is pro-inflationary may of course reinforce the MPC’s belief that interest rates should not be lowered at this time. On the other hand, data on economic activity or employment is not yet so weak as to alarm central bankers.
“If inflation rebounds to 8-9% in mid-year, it is not ruled out that there will be pressure to increase interest rates,” comments M.Stajniak from XTB. “However, at this moment we should rather take into account that there will be interest rate cuts, such are currently investor expectations.”
