Inflation threatens Poland’s GDP growth

The high inflation rate is not only hindering the growth of Poles’ income but also the Polish economy’s development

editor: Grzegorz Adamczyk
author: Anna Cieślak-Wróblewska
via: rp.pl

Inflation rates are breaking a new record every month in Poland. In December 2021, it was 8.6 percent and in January it may surpass 9 percent. Economists are not excluding the possibility that Poland may see even double-digit inflation, which may be a result of the introduction of new electricity (24 percent raise) and gas prices (54 percent increase).

In the later months, the massive surge in prices will slightly weaken, but inflation will still remain at a level of 7 to 8 percent. This is bad news for the pockets of Poles, as real household income will grow very slowly.

Bank PKO BP’s lead economist Piotr Bujak admitted that this situation would lead to consumption demand weakening, which in turn means a slowdown in the rate of the Poland’s economic development. Based on this development, economists have already started lowering their forecasts of Poland’s GDP growth for 2022.

“Inflation is becoming an increasingly dire threat for this growth. It is weakening the purchasing power of Poles’ incomes, as well as the investment activity of companies, which is a very bad outlook for the economy’s condition,” Credit Agricole Bank Polska lead economist Jakub Borowski explained.

Moreover, anti-inflation activity as part of monetary policy (raising interest rates) also contributes to slowing down GDP growth. Yet, it is hard to fault the Polish central bank, as increasing the cost of money is basically the only efficient way of combating inflation. It is also meant to suppress consumption demand.

Can the situation get worse?

if inflation gets out of control, a salary-price spiral could run rampant. In that case, combating this phenomenon may bring about catastrophic consequences for the economy and the job market in the form of a higher unemployment rate.

“The reduction of inflation could be achieved through a relatively low social-economic cost if the central bank would be able to credibly oblige itself to carrying out a policy of low inflation,” said Dr. Marek Dąbrowski of Kraków University of Economics. He added that so-called inflation expectations would be reduced, which is a key aspect in fighting inflation.

Some economists are of the opinion, however, that Poland’s central bank is not credible enough to achieve such a result.

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