June witnessed a further worsening in consumer moods, with both the current consumer confidence index portraying current changes in individual consumption and the leading confidence index showing predicted consumption changes considerably down. The scale and direction of the consumer index changes indicate that we may be facing a slowdown in individual consumption
All the factors influencing consumer confidence were down with the exception of awaited unemployment changes, where confidence levels remained unchanged from May.
The biggest confidence drop was visible in opinions on household finances and the country’s general economic situation. Also down were major household purchase figures, which had remained on a considerably high level over previous months.

The first half of 2008, especially the 2nd quarter, witnessed rising consumer prices. Prices in the construction sector rose at a slower pace
According to the Central Statistical Office (GUS) the Consumer Price Index (CPI) rose 4.4% year on year in May 2008 and 4.6% in June. This was mainly caused by rising food, housing, household services (including energy) and transport (including fuel) prices. In effect, the Consumer Price Index rose above the inflation target set by the Monetary Policy Council (RPP) and in April and May was respectively 0.5% and 0.9% above the upper limit of deviation from the National Bank of Poland’s target (2.5%+-1 percentage point).
In June 2008 most up in price against June 2007 were food (7.6%), household services (9% including a 10% rise in energy), homes (7.5%), alcohol and tobacco products (5.8%), retaurants and hotels (6.3%), and transport (4.7% including a 7.5% fuel hike). A slight price drop was noted in communications, recreation and culture. Also on a marked downward trend were clothing and footwear prices.

In June 2008 the Producer Price Index was 2.7% up from June 2007. A marked price rise was noted in mining (8.8%) and energy, gas and water supply (9.1%). In the manufacturing sector, prices rose an average 1.8% in the first half of the year, the biggest rise was noted in prices of tobacco products (over 20%) and petroleum products (almost 30%).
Despite marked wage hikes, the rate of growth in construction prices fell from 8.1% in January 2008 to only 4.7% in June. One of the reasons for this are falling construction material costs. It must be remembered, however, that the peak of the construction season is the third quarter and the situation may well change in months to come.

Monetary Policy Council raises interest rates
The Monetary Policy Council (RPP) at its meeting on June 24 and 25 raised the Polish central bank’s interest rates by 25 basis points (0.25 percentage points).
National Bank of Poland (Monetary Policy Council): The Consumer Price Index in Poland rose to 4.4% in May, above the central bank’s inflation target (2.5%) and the upper limit of deviation from the target (3.5%). Inflation was mainly driven by a sharp rise in regulated prices (gas, electricity) as well as food and fuel costs. The Council upholds its earlier forecasts of inflation remaining above the upper limit of deviation from the target in coming months, which will be mainly due to rising regulated prices and a marked rise in food and fuel prices over the year. The Council acquainted itself with an inflation/GDP projection prepared by the National Bank of Poland’s Economic Institute according to the new version of the ECMOD (NECMOD) model, which will among others serve as the basis for its interest rate decisions. In the June forecast, annual consumer price growth remains above the February figure until 2009 to falls below it in 2010. Given steady interest rates, there is a 50% chance that inflation will settle at 3.8-4.7% in 2008 (against 3.6-4.7% in the February forecast), 2.5-5.8% in 2009 (2.6-4.9%) and 0.1-5.7% in 2010 (2.1-4.8%). In keeping with June’s NECMOD projection there is a 50% probability that annual GDP growth will come to 4.3-5.5% in 2008 (against 4.4-5.8% as projected in February), 3.4-6.2% in 2009 (3.5-6.1%) and 3.8-6.8% in 2010 (3.6- 6.9%). In the Monetary Council’s opinion, pressure to raise wages and the resulting pressure on inflation will probably continue in the coming quarters despite an expected gradual slowdown in economic growth. Higher inflation will to a large degree result from the rise in regulated prices and the influence of rising global food and fuel prices on Polish economic growth. Prolonged high inflation carries the risk of permanently raised inflation expectations, and in consequence second-round effects. Also, the rise in energy and food costs may gradually influence other prices, especially service costs. Medium-term inflation pressure may be brought down by the corporate sector’s still-good financial situation and the high investment rate which helps to enhance productivity. Inflation pressure may also be weakened by a global economic slowdown and its impact on the Polish economy, as well as by globalisation processes (although to a lesser degree than to date). Another anti-inflation safeguard will be the central bank’s to-date interest rate hikes and the appreciation of the zloty observed over the past quarters. In view of the above and the June inflation forecast, and in order to lower inflation down to target level, the Council decided to raise interest rates. The Council will continue to carefully monitor the structure and growth of domestic demand, relations between wage growth and labour productivity growth, wage growth in the public finance sector, excessive fiscalism, the zloty exchabge rate, the current account balance and the impact of globalisation on the Polish economy, especially food prices. The Council will also survey changes around the Polish economy and their influence on growth and inflation forecasts.(Source: Monetary Policy Council session report, June 24-25, 2008, www.nbp.pl)