Central bank's latest report on Poland's inflation in 2023

The National Bank of Poland (NBP) on Friday published an "Inflation Report - March 2023". The projection of inflation and GDP presented in the report has been prepared at the Economic Analysis and Research Department of NBP. "The projection of inflation and GDP is one of the inputs to the Monetary Policy Council's decisionmaking process," we read in the introduction to the report.

The projection was drawn up based on data available by February 28, 2023.

According to the projection - prepared under the assumption of unchanged NBP interest rates - there is a 50-percent probability that the annual price growth will be in the range of 10.2 - 13.5% in 2023 (against 11.1 - 15.3% in the November 2022 projection).

The annual price growth in 2024 could be between 3.9 - 7.5% in 2024 (compared to 4.1 - 7.6%) and between 2.0 - 5.0% in 2025 (compared to 2.1 - 4.9%).

According to the so-called central path of projection, the annual inflation in 2023 will be at 11.9%, at 5.7% in 2024, only to drop to 3.5% in 2025.

"Over the projection horizon, CPI inflation will decline as factors currently boosting its level subside. However, under the assumption of unchanged NBP interest rates (including the reference rate at 6.75%), CPI inflation will only return to the band of deviations from the NBP inflation target defined as 2.5% +/-1 p.p. at the end of the projection horizon." the report says.

"Besides the slowing growth in aggregate demand in the economy – as reflected in the negative output gap – the further gradual decline in inflation is also supported by the assumed fall in global prices of energy and agricultural commodities. ... The downward trend in CPI inflation in the projection horizon will be supported by the gradual fading of tensions in supply chains, the slowdown in inflation abroad as well as falling growth of payroll costs," the NBP added.

According to the so-called central path of projection, the annual core inflation (core inflation refers to the national CPI, for the euro area HICP, excluding food and energy prices) in 2023 will be at 10.3%, at 6.0% in 2024, only to drop to 3.7% in 2025. Core inflation in 2022 was at 9.1%.

The annual GDP growth – according to March projection – will be with a 50-percent probability in the range of -0.1 - 1.8% in 2023 (against -0.3 - 1.6% in the November 2022 projection), 1.1 - 3.1% in 2024 (compared to 1.0 - 3.1%) and 2.0 - 4.3% in 2025 (compared to 1.8 - 4.4%).

According to the report, Poland's GDP will grow by 0.9% in 2023, by 2.1% in 2024, and by 3.1% in 2025.

The central bank stipulated, however, that "the central scenario of the projection, presenting the most likely macroeconomic developments in Poland, is subject to uncertainty".

"The outlook for economic activity and CPI inflation in Poland still depend to the greatest extent on the macroeconomic effects of Russia’s military aggression against Ukraine. An additional significant risk factor in the external environment of the Polish economy is the effects of monetary policy tightening by the ECB and the Fed on the economic situation in the euro area and the United States," we read in the report.

The NBP added that "the scale and scope of the fiscal shielding measures taken by the government" would continue to be "an important risk factor in the projection".