Business Institute warns of effects of inflation

Inflation is rising in Poland. According to analysts, this trend will continue to worsen over the next few quarters. Economists fear the impact of inflation on the health of businesses and the situation of households. They consider it necessary for the NBP and RPP authorities to take action.

We present the position of the Business Institute on inflation. The titles come from the editors.

The Main Statistical Office reported that in July 2019, the price increase reached 2.9% on an annual basis. The main cause is considered to be more expensive agricultural crops, which is affected by a drought that has been going on for a second year. Food prices have increased by 6.8% since July 2018. All indications are that this trend will continue unless producers obtain agricultural crops from abroad at competitive prices.

Sentiment and investment

The inflation factor is the unemployment rate, the lowest in the whole transition period. This translates into wage pressures for employees. Aware of the market situation, they can negotiate employment conditions, expecting higher wages or changing jobs, which destabilises human capital management and planning policies. The need to maintain production and provide the services offered makes employers decide to increase for employees, which is later reflected in the prices of the goods and services offered.

The level of inflation determines consumer sentiment and affects the level of investment. Price increases in the near term translate into important long-term decisions by entrepreneurs, who can abandon or postpone investment plans instead of new projects. As a result, the state budget is irretrievably losing tax revenue. An apparent alternative to the loss of revenue by the State may be the launch of various state-funded projects such as the Central Transport Port or the Vistula Spit, etc. However, such investments remain indifferent to the development of entrepreneurship, which is the biggest stimulus for economic development and sustainable income for the state budget.

Effects of social programmes

The actions of the governing bodies also increase inflation. Social programmes such as 500+ bring significant amounts of money to the market, which increases consumption and, as a result, demand. However, it is not caused by economic factors such as productivity, efficiency, added value or innovation. All social assumptions of programmes such as 500+, are socially important, but have a significant impact on the real economic situation Polish. Recently adopted new social programmes will also have an impact on the inflationary effect.

The situation on the energy market is another factor that will have an impact on price increases in the near term. Theoretically, higher bills are not expected to be felt by households at least this year, which will ensure electricity prices freeze. However, in a free market economy, this cannot continue indefinitely. Energy increases will first affect companies that find sources of financing by increasing the prices of goods and services or reducing their quality.

The beneficiary of rising inflation is the Treasury, the proceeds to the budget are tax-dependent. The higher the prices, the higher the revenue. The increase in prices can offset the effects of social programmes led by the 500+ programme and make the benefits of their introduction illusory or merely propaganda. It should also be borne in mind that price increases will make it worse for households whose members are not covered by the new social programmes. Their purchasing power is diminishing and consumer sentiment is deteriorating.


The global economic situation should also be taken into account when assessing inflation. The Polish economy is not an island detached from other countries. The increase in inflation may limit the export opportunities of Polish producers, who have been gaining new markets for many years. The loss of exporters' competitiveness, particularly on the markets of european Union countries, can occur in the short term and can be extremely difficult to rebuild. Rising inflation in Poland may also affect the valuation of state debt. It should be remembered that Poland, despite the excellent economic situation, is still indebted.

The current market situation and the known effects of inflation are worrying in the long term. It therefore seems appropriate to react from the National Bank of Poland. NBP's projection of inflation and GDP in the current economic situation should be an important condition for the Monetary Policy Council, which decides on the level of interest rates. In view of the recent price increases observed in recent periods, a clear signal or even a series of measures is expected from the central bank showing a willingness to fight inflation.

Juliusz Bolek
Chairman of the Board of Directors of the Business Institute