Warsaw, Poland – November 2, 2022: The skyline of Warsaw, the capital of Poland. The Polish government has proposed raising the country’s minimum inflation rate to around 20% in 2024, a move economists say will keep inflation higher for longer. Poland’s ruling Law and Justice party (PiS) is seeking a landmark third term as the country goes to the polls later this year.
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The Polish government has proposed a record increase in the national minimum wage of more than 23%, a move economists fear will fuel double-digit inflation.
The ruling Law and Justice party (PiS) last week announced plans to raise the current monthly minimum wage from 3,490 zlotys ($859.60) to 4,242 zlotys in January 2024 and 4,300 zlotys in July 2024 .
The government is seeking a third term, a feat unprecedented in Polish democratic history, as the country holds general elections this fall. The latest opinion polls show PiS narrowly ahead of the KO (Civil Union) led by former European Council president Donald Tusk.
Poland’s family and social policy minister, Marina Malague, told the state-run news agency People’s Action Party last month that the minimum wage increase was aimed at helping people cope with rising costs of living.
Poland’s consumer price index eased in May, but still rose 13% yoy. Prices stagnated month-on-month for the first time since February 2022, partly due to normalization of energy costs.
National Bank of Poland Chairman Adam Grapinski said earlier this month that the Monetary Policy Committee could consider a rate cut later this year if price growth slipped to single digits.
That is “premature,” ING Poland chief economist Rafal Benecki said in a research note last week.
“In Poland, the pace of deflation will slow significantly in the fourth quarter and cannot be taken for granted further down to the target level. Especially against the backdrop of an expected rebound in economic activity and expansionary fiscal policy,” he said.
Benecki noted that the government has increased the state budget deficit by PLN 24 billion to PLN 92 billion this year and plans to increase the country’s child benefit program for families over 500 next year, while significantly raising the minimum wage.
“In our view, this will translate into sustained double-digit growth in average wages in the economy, keeping core inflation elevated,” Benecki said.
“Against this backdrop, a possible rate cut in late 2023 is more likely to be a one-off move, while a regular monetary easing cycle could begin in the third quarter.”
He highlighted that core inflation in Poland remained the most unfavorable in the Central and Eastern European (CEE) region, while developed market central banks sounded more hawkish, suggesting they see upside risks to inflation.
“In our view, bringing inflation down to target would require wage growth to fall below 5 percent year-on-year and a paradigm shift in economic policy, ie less consumption and more investment,” Benecki said.
“Recent fiscal easing has raised concerns about whether the favorable composition of GDP in the first quarter will continue in subsequent quarters.”
further untie
Polish corporate sector wage growth fell to 12.1% in May, but economists remain concerned about the medium-term inflation outlook.
What’s more, PiS is expected to loosen the fiscal purse further ahead of the election crunch.
Nicholas Farr, an economist at Emerging Europe, said: “With the labor market still very tight and further pre-election fiscal stimulus likely to be announced in the coming months, the risks to wage and inflation pressures are greater than we currently envisage. more durable.” In Capital Economics.
He stressed that the impact of the latest increase could be “meaningful” given the “significant increase” in the number of workers receiving the minimum wage in Poland in recent years.
“Based on an estimate of about 3 million workers receiving the minimum wage, rough calculations suggest wage growth could increase by about 4% next year (relative to a scenario where the minimum wage remains unchanged),” Farr said in a research note last week. .
“That said, the actual impact is likely to be greater, as other state benefits are also tied to the minimum wage, and the increase could mean that other employees (i.e. those not on the minimum wage) will also demand larger pay increases”
Fall noted that the new policy proposals are “more worrisome,” with wages still growing at double-digit annual rates and unemployment still near record lows.
“As a result, we are increasingly concerned that wage and price pressures in the coming quarters may be stronger than we had anticipated, and there is a risk that we are already above consensus end-2024 rate expectations of 5.50% (currently 6.75%) Seems to be sloping upward.”