“Real wages have risen at the highest rate since February 2019. Meanwhile, the double-digit pace of nominal wage growth, which is a factor driving inflation, has been sustained since the beginning of 2022. Consumption dynamics are increasing again.
The average gross wage in October 2023 amounted to PLN 7,545, which is a year-on-year increase of 12.8%, with analysts’ consensus predicting a dynamic of 11.8%. On a monthly basis, the average salary increased by 2.2%, also stronger than forecasts, which assumed 1.2%.
Average wages in real terms, i.e., adjusted for inflation, grew at the highest rate since February 2019. For comparison, in August and September, the annual dynamics were 11.9% and 10.3%, respectively.
Inflation in October decreased to 6.6% year-on-year, meaning that the average salary in companies employing more than 9 people last month could be realistically as much as 6.2% higher. October was the third consecutive month with a positive real wage dynamic. Real wages have risen at the highest rate since February 2019.
‘High wage growth persisted during a period of very high inflation, although there were months when the real dynamics of wages and the wage fund were deeply negative, and then it was feared that this could be a factor weighing on economic growth,’ says Dr. Przemysław Kwiecień, chief economist at XTB, in a conversation with MarketNews24. ‘Now this situation is reversing, which is all the more important as inflation is likely to fall to the 5% level by the first quarter of 2024, but will then start to rise again.’
Regular double-digit pace of nominal wage growth, which is a factor driving inflation, has been maintained since the beginning of 2022.
The decline in inflation in the coming months will be related to the base effect, for example, a year ago, electricity prices increased significantly. Now it may be equally expensive or slightly more expensive (if the freezing of tariffs is maintained), but due to the base effect, the year-on-year inflation dynamics associated with it will already be very low. It may even lower overall CPI inflation.
Consumption dynamics are increasing again. Retail sales in enterprises employing more than 9 people increased in October to 4.8% year-on-year compared to 3.6% in September, shaping up above the market consensus (4.6%). After eliminating the impact of seasonal factors, real retail sales in October increased by 2.1% month-on-month, thus increasing for the fifth consecutive month and shaping up at the highest level in history. Meanwhile, the dynamics of retail sales calculated in constant prices increased in October to 2.8% year-on-year (the highest since September 2022) compared to -0.3% in September.
Falling external inflation, which for example in the USA is already close to the inflation target, facilitates the reduction of inflation in Poland. For us, core inflation, i.e., internal factors such as real wage growth and consumption, will slow down even more in Poland’s achievement of such a target (we have twice as high inflation as in the USA, although the inflation target is similar, 2% in the USA and 2.5% in Poland).
‘When the Fed and ECB start lowering interest rates, recognizing that they are on the right track to achieving the inflation target, then global demand will start to grow, and inflationary pressure in Poland will be higher,’ adds the XTB expert. ‘If consumer demand in Poland continues to recover, then we will start to move away from the inflation target again. It becomes even more important what the policy of the new government will be.’
Pre-election promises were very high, with all parties bidding to increase government spending. However, it is positive that the RPP did not lower interest rates after the parliamentary elections.
‘RPP ‘magically’ changed its position and suddenly does not see the need to lower interest rates, this is an element that will help a bit,’ comments P. Kwiecień from XTB. ‘The puzzle is very complicated, also due to the threat of recession in the European economy, which is in a worse condition, while the American one is doing better. Stimulating demand may be dangerous for us.'”
