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Strong Wage Growth Signals Consumer Recovery and Inflationary Pressures

ECONOMYStrong Wage Growth Signals Consumer Recovery and Inflationary Pressures

Consumer inflation in Poland decelerated in February to 5.4% YoY (the lowest since December 2021). Although the overall CPI inflation rate is noticeably decreasing (2.8% YoY in February) its core component remains very high. As this part of inflation is critical for the National Bank of Poland (NBP), it is highly likely to be a hurdle in reducing interest rates this year. For the second month in a row, wage dynamics in the private sector were in double digits (12.9% YoY) and were the highest since the end of 1999, signaling (as of now weak) consumer recovery and a persisting higher level of core inflation. Retail sales notably exceeded expectations in February (6.1% YoY compared to market estimates of 4.9% YoY).

– As expected, the Federal Reserve kept interest rates unchanged (the main rate at 5.25-5.50%). In its new forecast for the further interest rates development, the outlook for this year was unchanged (three cuts totaling 75 basis points). However, the Fed forecasts fewer cuts for 2025 than previously (three cuts compared to the previous four). Preliminary estimates of March PMI indices in Germany and the eurozone left a somewhat mixed impression – improvement in the services sector, a decline in the industry.

– On the currency pair with the dollar, the euro initially strengthened to 1.095 USD/EUR but gave back gains and ended trading slightly below 1.085 USD/EUR. On the PLN/EUR currency pair, the zloty was mainly trading in the range of 4.300 – 4.325 PLN/EUR. In relation to the dollar, the zloty was in the range from 3.94 to 3.99 PLN/USD.


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