Inflation in Poland will rise sharply - what's next with the PLN?

Prices in Poland are growing at the highest pace in two decades, approaching 8%. y / y Despite the inflation shield, this may unfortunately be only the beginning of inflation rise to approx. 10%.

For the further dynamics of price increases may be responsible approved today by The energy regulatory office plan of tariff increases for households for electricity and gas. According to the calculations of the Energy Regulatory Office for electricity in 2022 we will pay an average of about 24 percent. more than in 2021, a for gas over 50 percent more. Thus, an increase in the costs of, for example, house maintenance, may increase by about PLN 200 net a month. Because the inflation basket calculated by the Central Statistical Office in about 20 percent. what matters is the use of a flat and energy carriers, the impact on the inflation reading can be huge.

Although in Poland the introduction of an anti-inflation shield and a reduction of the VA tax are plannedT, however, the tax is to return in April 2022. Then, after a calmer first quarter of next year, inflation in Poland may rise to around 10 percent! This, in turn, may come with actions National Bank of Polandthat may not tolerate record negative real interest rates.

With the interest rate at the current level and inflation close to 10 percent. the real interest rate would be around minus 8 percent. Hence, it seems that the MPC will decide to raise rates by spring 2022 interest ratesso that by April 2022 the reference rate would fall to the level of 3-3,5%, reducing the negative real interest rate.

How can the zloty behave?

So that the situation does not get out of hand and does not start to resemble what is happening in Turkey, the NBP may stop informing about possible currency interventions and start balancing the risks for economic growth due to the increase in the cost of living and, at the same time, possible lower consumption of households. Ultimately, if there are no negative surprises, the zloty may even strengthen due to the potentially growing interest rate disparity. With such a turn of events, it is possible that the EUR / PLN pair will manage to keep around 4,70 as a potential place of resistance. And the region of 4,57 may be a potential support for the trading.