Poland’s inflation surge takes shine off economy

Barbara Kaczor took the interruption brought on by the Covid-19 pandemic in her stride. However the 41-year-old from Czestochowa in southern Poland has actually discovered managing this year’s fast rise in rates more of a battle.

“When you go shopping you spend so much money you don’t know what you have spent it on. I understand that prices change, but what is happening now is just crazy,” she said, reeling off the increases in the cost of everything from butter and tomatoes to gas. “Believe it or not, last year with the start of Covid was much easier.”

Kaczor is among millions of Poles feeling the pinch. Annual inflation hit 7.8 per cent last month, the highest level for two decades, and the fourth highest in the EU. With energy tariffs due to rise more than 20 per cent and gas prices by more than 50 per cent next year, consumers expect more pain and the topic has actually raced up the political agenda.

Much of the developed world is grappling with a similar pattern. But for Poland’s ruling Law and Justice party (PiS), rampant inflation is a particularly tricky problem. The conservative-nationalist government has come under fire at home and abroad over democratic backsliding. But despite these fights, it has remained the most popular party thanks to a large extent to its success in improving the lot of less well-off Poles.

“PiS has won over voters with a very simple promise: you will be better off; your wealth will go up. High inflation makes it much harder to deliver on that promise, and that is why it is so dangerous for this government,” said Marcin Duma, head of the IBRiS polling agency in Warsaw.

“Inflation is especially painful for those people who have seen their wealth grow over the last five or six years. They have been able to go on holidays, to buy things they couldn’t before. And now suddenly, their bills are going up and they cannot spend on the things that they have got used to.”

Tadeusz Koscinski, Poland’s finance minister, listens during a meeting
Tadeusz Koscinski, Poland’s finance minister, says high inflation figures were ‘something that needs attention but not major panic’ © Thierry Monasse/Getty

For Kaczor, who works for a company that carries out surveys and teaches languages on the side, the jump in prices has meant longer hours to make ends meet and fewer holidays and trips to the cinema. “Sometimes you have to decide what is a priority,” she said. “Most of all, you have to pay the bills.”

Businesses are also concerned. Marcin Nowacki, deputy head of the ZPP employers’ association, said that while not all companies were yet feeling its impact, inflation was “the biggest threat for next year”, adding: “If it remains and goes above 10 per cent, it will be very difficult, and we will all feel it, both Poles and businesses.”

Poland’s opposition has attempted to seize on the topic, accusing PiS of fuelling the problem through reckless spending. This month, it projected “PiS = high prices” on to the ruling party’s headquarters in Warsaw. Opposition lawmakers unfurled a banner with the same message during a session in parliament.

PiS officials argue that — as in much of Europe — inflation has been driven by external factors such as energy prices and disruption caused by the pandemic.

The government has announced a 10bn zlotys ($2.5bn) package of temporary tax cuts on energy and fuel, and also plans to cut VAT on food. It has also lobbied for reform of the EU’s emissions trading system: prices for carbon permits have more than doubled this year.

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However, analysts say external factors are only part of the story. High energy prices have been compounded by Poland’s ageing, coal-intensive energy system, which makes the country particularly exposed to soaring carbon permit prices. Moreover, fiscal and monetary policy have remained loose, even as the economy has grown at close to 5 per cent in recent years and labour shortages have put upward pressure on wages. Polish inflation was among the EU’s highest even before this year’s rise.

“We are . . . paying the price for the mistakes of governments past and the lack of investment in the green transition. Our energy system is outdated and high-emission and so we have to acquire more carbon emission permits than other countries,” stated Hanna Cichy, an economist at Polityka Insight in Warsaw.

“There are very difficult demographic pressures, and there is also a competence gap: not only are there not enough workers, but we don’t have the right skills to fill the gaps in the market.”

High inflation figures were “something that needs attention but not major panic”, said Tadeusz Koscinski, Poland’s finance minister. “The most important thing for us as a government is to control the emotions and make sure that people don’t think that this is a permanent situation.”

However, barring an intensification of the pandemic, economists doubt inflation will return to the 2.5 percent targeted by Poland’s central bank soon. “Core inflation is above 4 per cent and strong, so you have to expect that inflation will remain above 7 per cent next year,” Cichy stated. “It is very unlikely that it will return to the central bank’s target in 2023.”

Jobber Wiki author Frank Long contributed to this report.