Poland’s soaring inflation makes the economy shine

Barbara Kaczor calmly responded to the damage caused by the Covid-19 pandemic. But the 41-year-old from Czestochowa in southern Poland found that dealing with this year’s rapidly rising prices was more like a struggle.

“When you go shopping, you spend a lot of money, you don’t know how much you spend. I understand that prices will change, but what is happening now is crazy,” she said, from butter, tomatoes to gasoline, etc. The cost of various commodities is rising. “Believe it or not, with the start of Covid last year, things got easier.”

Kaczor is one of millions of Poles who feel the pressure. The annual inflation rate reached 7.8% last month, the highest level in two decades, and ranked fourth in the European Union. As energy tariffs will rise by more than 20% and natural gas prices by more than 50% next year, consumers are expected to have more pain, and this topic has risen to the political agenda.

Many developed countries are struggling to cope with similar patterns. But for Poland’s ruling Law and Justice Party (PiS), rampant inflation is a particularly thorny issue. The conservative nationalist government has been criticized at home and abroad for its democratic regression. But despite these struggles, it is still the most popular party, thanks in large part to its success in improving many less wealthy Poles.

“PiS won the support of voters with a very simple promise: You will live better; your wealth will increase. High inflation makes it more difficult to fulfill this promise, which is why this is so for this administration. Dangerous,” said Marcin Duma, head of the IBRiS polling agency in Warsaw.

“For those who have seen their wealth increase in the past five or six years, inflation is particularly painful. They can go on vacation and buy things they couldn’t buy before. And now suddenly, their bills are rising and they can’t Spend money on things they are used to.”

Polish Minister of Finance Tadeusz Koscinski stated that high inflation figures are “something that needs attention but not a serious panic.” © Thierry Monasse/Getty

For Kaczor, who works for a company that is engaged in research and teaching languages, rising prices mean longer livelihoods, fewer vacations and fewer trips to the cinema. “Sometimes you have to decide what is the priority,” she said. “Most importantly, you have to pay the bills.”

Companies are also worried. Marcin Nowacki, vice president of the ZPP Employers’ Association, said that although not all companies are feeling the impact, inflation is the “biggest threat next year”, adding: “If it maintains and exceeds 10%, it will be very difficult and we will all Feel it, whether it’s a Polish or a company.”

The Polish opposition tried to seize the topic, accusing PiS of exacerbating the problem through reckless spending. This month, it predicted “PiS = high price” to the headquarters of the ruling party in Warsaw. Opposition parliamentarians unfolded banners with the same message during the parliamentary meeting.

PiS officials believe that, like most parts of Europe, inflation is driven by external factors such as energy prices and the devastation caused by the pandemic.

The government announced a 10 billion zloty (2.5 billion U.S. dollars) temporary tax cut on energy and fuel, and plans to cut food value-added taxes. It also lobbied to reform the EU’s emissions trading system: the price of carbon emission permits has more than doubled this year.

However, analysts say that external factors are only part of the story.High energy prices intensified Poland’s aging coal-intensive energy system, Which makes the country particularly vulnerable to soaring carbon emissions permit prices. In addition, fiscal and monetary policies remain accommodative, even though economic growth has approached 5% in recent years, and labor shortages have put upward pressure on wages. Even before the surge this year, Poland’s inflation rate was already the highest in the European Union.

“We are… to pay for the government’s past mistakes and lack of investment in the green transition. Our energy system is outdated and has high emissions, so we must obtain more carbon emission permits than other countries,” Warsaw Polityka Insight Economics Said the scientist Hanna Cichy.

“The population pressure is very high, and there is also a capacity gap: not only do not have enough workers, but we do not have the right skills to fill the gap in the market.”

Polish Finance Minister Tadeusz Koscinski said that high inflation data is “a matter of concern but not a serious panic.” “For our government, the most important thing is to control emotions and make sure that people don’t think this is a permanent situation.”

However, unless the pandemic intensifies, economists suspect that inflation will soon return to the 2.5% target set by the Polish Central Bank. “Core inflation is higher than 4% and strong, so you have to expect inflation to stay above 7% next year,” Cichy said. “It is unlikely to return to the central bank’s goal in 2023.”

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