Zubelewicz on inflation. Why are prices going to increase?

The November GNP projection is realistic and non-conservative (assuming a pessimistic macroeconomic scenario) – Kamil Zubelewicz, a member of the Monetary Policy Council, told Biznes. In his opinion, the external situation should be exceptionally good, so that the expected price increases would not occur in 2019.

"The inflation forecast for 2019 for November is in my view realistic and not conservative. Unless there are positive shocks on the supply side, prices may exceed 3%. per year " – said Zubelewicz.

"I share the forecast of the economic analysis department that, in the long run, inflation should remain above the inflation target over the projection horizon," he added. The central trajectory of the November NBP projection for 2018-20 with respect to inflation is 1.8% and 3.2%, respectively. and 2.9%. Core inflation should reach 0.8%. in 2018, 2.1%. in 2019 and 2.7% in 2020

Zubelewicz on inflation. Why are prices going to increase?

NBP Governor Adam Glapiński said after the November MPC meeting that the projection implied a conservative approach, this is to say a very strong increase in energy prices. A similar statement was included in the discussion after the last meeting of the MPC.

According to Zubelewicz, the MPC's decisions on interest rate increases will be late.

"I am confident that any future decisions of the Board regarding interest rate increases will be delayedA lack of confidence in the forecasts presented to the Board may justify keeping interest rates unchanged. Throughout the projection horizon, we are almost certain that inflation will remain permanently above the middle of the range of fluctuations around the target, "said Zubelewicz.

Zubelewicz thinks that the external situation should be exceptionally good, so that no expected price increase can take place in 2019. In his view, in the long run, the trend of the growth trajectory of inflation indicates that it has exceeded the level of deviations from the target.

If we look at the inflation trajectory put in place, we have seen a clear upward trend since the beginning of 2015. And although, after faster price increases, growth is a bit slower, the price balance is increasing more and more. The current projection also forecasts a rapid price increase in 2019 and a slightly lower price in 2020. 
In my opinion, for monetary policy, the key is not to determine how inflation will be shaped in the coming year, but what will happen at the end of the next six months. projection. The question is whether we are on the eve of significant price increases, which are further corroborated by energy cost issues. The observed trend of growth on the path of inflation is indeed decreasing asymptotically, but it threatens in the long run to exceed the level of deviations from the target.

Energy prices and price increases

"Despite the issue of energy prices, this trend is very worrying: with such low interest rates, the external situation should be exceptionally good, so that the expected price increases do not occur in 2019 "- he added.

Zubelewicz believes that energy prices could rise in the coming years, and no compensation for households will stop this process.

"I have assumed that the projection should include an increase of at least 10% in energy prices for households. Of course, the regulator can make any decision in this area, but sooner or later, electricity prices will rise. Budget offsets can calm inflation expectations for a while. However, it should be emphasized that increases in energy prices are not a closed process, they can also occur in the next few years. For businesses, they are already significantly higher. Since the increases affect all producers, they can simultaneously try to raise the prices of their goods and services, "said the economist.

The November projection assumes a total of 12%. Increases in regulated electricity prices for all rate groups – said Monday PAP Monday, RPP member, Grażyna Ancyparowicz.

According to Zubelewicz, the slowdown in economic growth in Poland it must not have any disinflation effect.

"The expected slowdown in economic growth in Poland does not necessarily have to have a disinflationary effect, I am rather worried about the combination of weak GDP growth and significant inflation." Fortunately, there should be no stagflation, combining strong price growth and negligible GDP growth, "he said.

"The rise in energy prices can limit consumption and the tendency of companies to raise wages, but at the same time, there is a significant lack of employees in the economy, compounded by the 39, increasing openness of the German economy. " – he added.

The central trajectory of the GNP projection assumes GDP growth of 4.8% in 2018, 3.6% in 2019 and 3.4% in 2020.

The target of inflation is bad

Mr Zubelewicz voted in September against the adoption of a resolution concerning the monetary policy assumptions for 2019 due – according to him – to an overly high wording of the monetary policy goal. ;inflation.

"In the Monetary Policy Guidelines for 2019+, the level of the inflation target was too high, which is why I did not support it. inflation should be at least 0.5 point lower, "he said.

"Our main trading partners have an inflation target of up to 2%." A +/- 1% margin of safety would allow faster price growth in Poland, linked either to faster economic growth that in the Western countries, or to an economic policy independent of ours.The current target of 2.5% however results in an artificial weakening, systematic, long-term and useless zloty.With a stronger currency, it is easier to repay the external debt, often forgotten, "he added.

The current situation in the banking sector does not require any action on the part of the MPCs – evaluates the economist.

"In my opinion, the current situation in the banking sector does not require any action of the Council, because the implementation of monetary policy objectives is not threatened." In the area of ​​the Council's powers, nothing serious is happening, "he said.

On November 20, after a regular meeting of one day, the MPC issued a statement in which he expressed his acceptance of the actions of the board of directors and the president of the BNP in the face of the situation in the banking sector .

"The Monetary Policy Council has taken note of the information on the current situation of the banking sector and has accepted the previous actions of the president of the NBP and the management board of the NBP" – it was written.

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