The change to 800+ is not a raise but a compensation in times of inflation

Currently, the real value of 500 Plus in the program launch prices is PLN 338. Therefore, the proposal to replace the 800 Plus is not surprising. It will restore the value of the benefit from the start of the program, but it will not be a real increase. In January 2024, the 800+ beneficiary will buy the same amount in the store as he bought for 500+ in April 2016. To fight inflation, increasing 500+ may have the same effect as lowering interest rates.

Compensation, not a raise

Recently, politicians have announced changes to the 500 Plus program. They result from the upcoming elections. High inflation significantly reduced the real value of the benefit paid so far. At the end of April, each PLN 500 from the program received by a Polish family was worth PLN 2016 in real terms (at the prices from the start of the program in April 338). If at the end of this year, inflation reaches 10 percent. y/y, then the value of the current benefit at the end of December will amount to PLN 317 in real terms, and in the first half of 2024 it will fall below PLN 300.

The announcement of the change from 500 to 800+ allows you to restore the original value of the purchasing power of the benefit. Currently, in order for the family to be able to make the same purchases as in April 2016 (at the start of the programme), the benefit should amount to PLN 740 per month. And assuming inflation at the end of the year at 10 percent. y/y, at the end of the year it would have to be PLN 788. This means that the change to 800 plus only restores the real value of the benefit, and is not actually its real increase.

The increase is a response to inflation, which at the end of April amounted to 14,7 percent. High inflation will probably accompany us for several more months. Currently, the price increase is about 1%. monthly. And it is inflation that Poles perceive as the most important threat to their savings and investment portfolios. According to the Puls Investor's Individual Survey conducted quarterly by eToro platform, 27 percent of Poles believe that inflation is the most serious threat to their investments in the next 3 months.

What about inflation?

However, it should be remembered that an increase in the amount of the benefit to PLN 800 will definitely make it more difficult to fight against inflation. The additional money will increase the shopping possibilities of some Polish families, which will translate into additional demand. It can be assumed that the additional consumption demand generated in this way may have the same effect on the market as lowering interest rates by RPP by 0,25 pp

The announcement of the 500+ increase is moderately well received by the financial markets, as it did not stop the recently observed strong strengthening of the zloty. And the price of the euro has recently remained below the psychological level of PLN 4,50. It is worth pointing out that from 2016 to 2022 budget revenues increased by about 60%. (from PLN 315 to PLN 505 billion). That is exactly the same percentage as the proposed increase in the amount of the 500 Plus benefit.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.