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2021/06/14 / Erste Group Research

Poland Weekly Focus | What drove inflation in May?

Flash inflation for May to be confirmed at 4.8% y/y. Core inflation to remain stable close to 4.0% y/y. Labor market statistics to be strongly affected by base effect from last year. Central bank to hold QE auction.

June 15 | Flash reading to be confirmed. We expect the flash inflation reading to be confirmed at 4.8% y/y (0.3% m/m) in May. Headline CPI remains in an upward trend since the beginning of the year and in May reached the highest level since November 2008. Inflation continues to be driven by rising fuel and food prices as well as increases in administered prices, which were introduced at the start of the year. Moreover, core inflation for May will be released on June 16 and we expect it to remain stable at 3.9% y/y. All in all, we see headline CPI averaging 4.0% this year, with risks to the upside stemming from the reopening of the economy and supply-side bottlenecks.

June 18 | Base effect to strongly affect labor market data in May. The impact of pandemic restrictions and subsequently introduced short-time work (‘Kurzarbeit’) schemes was the most visible in labor market statistics in May-June 2020. Thus, the May wage and employment growth data will be strongly influenced by the base effect. We expect wage growth to reach 10.4% y/y, while employment growth could jump by 2.5% y/y in May. Despite solid growth rates, there are still around 130tsd job positions less on the market compared to February 2020. Finally, initial data suggests further improvement in the unemployment rate, as it likely dropped by 0.2pp to 6.1% in May.

Bond market drivers | 10Y yield moved toward 1.7%. Over the course of the week, the 10Y yield followed core market development, where the 10Y German Bund dropped by 5bp to -0.27%. The 10Y Polish yield decreased by around 10bp to 1.72%. As a result, the spread against the 10Y Bund narrowed further to below 200bp. Last week’s MPC meeting and press conference of Governor Glapinski did not bring any material change in the dovish stance of monetary policy. According to the MPC, the recent inflation surge is temporary and driven by exogenous factors that are outside the scope of monetary policy. The governor also addressed the rejection of the bids at the second QE auction in May and market speculations about a possible end to the asset purchases program. The central bank did not accept the offered bids as the prices offered by the banks were too high. Glapinski reiterated that the QE program is flexible and depends on the market situation. The NBP will hold one QE tender this month on June 16.

FX market drivers | EURPLN back at 4.50. Last week, the zloty pared back some of its recent gains and depreciated as the EURPLN returned to 4.50. The stronger US dollar and more dovish press conference of the National Bank of Poland’s governor weighed on the zloty. The USD appreciated and moved to 1.21 vs. the EUR despite inflation surging to 5% y/y in May. At Friday’s press conference, Governor Glapinski pledged loose monetary policy and ruled out any material change to the policy setup in a near future. In his view, July growth and inflation projections will be crucial for the interest rate outlook in Poland. This week, the Fed policy meeting and new FOMC meeting participants’ forecasts will be in focus. It will be interesting to observe how recent higher than expected CPI prints affected staff inflation and interest rate forecasts.

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General information

AuthorErste Group Research
Product nameCEE Country Update
Topic in focusMacro/ Fixed income
Economy in focusPoland
Currency in focusPolish Zloty
Sector in focus-


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