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Tuesday, June 24, 2008

Poland Retail Sales May 2008

Polish retail sales rose more than many observers expected in May, adding to speculation that central bank policy makers will increase interest rates tomorrow as domestic demand continues to fuel inflation. Retail sales rose an annual 14.9 percent, compared with 17.6 percent in April, according to data from the Warsaw-based Central Statistical Office earlier today.

Demand for consumer goods, in part a by product of record high employment and the fastest wage growth in eight years, has been driving inflation in Poland, boosting the impact of the surge in oil and food prices. Inflation has remained above the central bank's target of 2.5 percent for eight months.

Poland's annual inflationrate rose to 4.4 percent in May, up from 4 percent in April. Consumer prices rose a monthly 0.8 percent, compared with a gain of 0.4 percent a month earlier.

Wages in Poland's corporate sector rose 12.6% on the year in April, above forecasts and up from 10.2% in March, according to data released Monday by the Central Statistical Office. On the month, April average wages fell 0.2%, following March's 3.7% monthly rise. The figures are preliminary and cover Polish companies with more than nine employees.

Total employment at firms with more than nine employees amounted to 5.39 million in April, up 5.6% on the year.

Poland's jobless rate declined to the lowest rate in almost a decade in April, falling for a third consecutive month as robust economic growth boosted hiring. Unemployment declined to 10.5 percent from 11.1 percent in March, according to the methodology used by the Central Statistical Office. About 1.61 million Poles were registered as unemployed at the end of April, the office said.

Using the EU harmonised methodology there were 1.313 million Poles unemployed in March (the latest month for which we have such data) and the seasonally adjusted unemployment rate was 7.7%.

Construction output was up by 22.8% in April.

Most observes feel that the central bank Monetary Policy Council will lift the benchmark seven-day reference rate by a quarter of a percentage point to 6 percent tomorrow. Policy makers have lifted the rate to 5.75 percent in seven increases since April last year, when the rate was at the record low of 4 percent.

The Polish central bank rejected a bid to raise the benchmark interest rate a quarter of a percentage point last month since policy makers said they wanted to see the bank's inflation projection which is due this month, according to the minutes of the rate-setting meeting.

``Most members of the Council decided that the full assessment of the risk of persisting inflation'' will be ``possible after the release of the central bank's June inflation projection,'' the bank said in minutes from the May 27-28 meeting. ``This argument justified, in their opinion, leaving interest rates changed.''

However there is one possible snag with the interest rate rising scenario. The question is, what impact will such a move have on the appetite among Poles to contract debt in euros rather than in zloty. There is a considerable market for non-zloty loans in Poland, although it is not at this point as extensive as the demand for forex loans in places like Hungary, the Baltics or Croatia, and the appetite for such loans this does not seem to have grown disproportionately vis a vis zloty loans (both have been growing very fast) in recent years.

And there has long been a healthy demand for non zloty mortgage finance.

But interestingly, if we come to look at the comparative year on year changes between the two possibilities in terms of mortgage finance, what we will see is that while the zloty loans were gaining ground when monetary policy in Poland was relatively loose, since the National Bank of Poland started tightening in a serious way last autumn, the situation has inverted, and the year on year rate of increase in forex loans has been accelerating, while the rate of increase in zloty mortgage lending has been slowing. If the Polish central bank needs to continue to tighten and the ECB (despite Trichet's most recent sabre rattling) starts to loosen later in the year, then it will be interesting to follow the comparative path here, since the position in Poland gives a pretty good birds eye view of the effectiveness of single country monetary policy (or its limits) in the context of today's globalised world.

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