Poland: Lower inflation, but worrying credit growth

From Danske Bank:

Poland: Lower inflation, but worrying credit growth Polish inflation eased to 2.3% y/y in July from 2.6% y/y - in line with our forecast, but a bit below the consensus expectation (from Reuters) of 2.4% y/y. The inflation numbers do not give us any reason to change our expectation for the Polish markets and monetary policy. The drop in inflation is mostly due to a fairly strong base effect. That said, there are clearly inflationary pressures in the Polish economy and we would expect inflation to inch upward towards 3% by the end of the year. The inflationary pressure in Poland stems from the supply as well as the demand side of the economy. We are mostly concerned that the tighter labour market situation will increase wage pressure, but the risk of zloty weakness and higher food prices poses some inflationary risk. However, we expect the Polish central bank (NBP) to especially focus on wage development as an indicator for future inflationary pressure. We continue to expect the NBP to hike rates twice more this year (two times 25bp), but the NBP is likely to keep rates on hold at this month’s monetary policy meeting. Today we also got money supply and credit growth numbers. The money supply (M3) grew 19.3% y/y – a bit on the high side, but more importantly, the credit growth to households continues to accelerate. Hence, credit growth to households was 40.1% y/y in July – up from 37.6% in June. Until now we have not been overly concerned about lending growth in Poland – at least not compared to other countries in the region – but this kind of credit growth is clearly not sustainable in the longer run.