Inflation. Government and RBA policy. Experts Ryszard Bugaj and Łukasz Rachel on the forecast

High inflation and how to combat it was the main topic of discussion for experts from “Faktach po Faktach”. Professor Ryszard Bugaj pointed out that the phenomenon of inflation is not only an economic process, but also a social and political one. Doctor Łukasz Rachel pointed out that at the current level of inflation it becomes unpredictable and unpredictable.

The guests of the Saturday issue of “Fakty po Faktach” on TVN24 were Professor Ryszard Bugaj – economist, former adviser to Lech Kaczyński and Doctor Łukasz Rachel – economist, assistant professor at University College London (currently a researcher at the University of Princeton).

In the context of inflation, they commented on the words of NBP Governor Adam Glapiński, who in a long speech said, among other things, that despite high inflation and a tense geopolitical situation, the economic situation in Poland is good. According to him, the fight against inflation in our country is taking place “at the right pace” and with “the right dynamics of interest rates”.

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Ryszard Bugaj and Łukasz Rachel in “Fakty po Faktach”TVN24

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Bugaj: a complex situation but going in the wrong direction

“The situation is complex, but in my opinion it is going in the wrong direction for two reasons,” commented Professor Bugaj.

The first, as he mentioned, is that “there are many objective conditions unfavorable to the functioning of the Polish economy”. “And they, which is worse, continue to grow,” he added. “But perhaps even worse is that it is inadequate to oppose it.” State policy has two macroeconomic instruments: monetary policy and fiscal policy. They must be harmonized – he stressed.

– It’s the NBP and the government – added Piotr Marciniak, who heads the program, which Bugaj confirmed.

– They’re going in opposite directions. The government, with its decisions, for example, to lower taxes from seventeen to twelve percent – that’s a lot, five percentage points – is pushing for an increase in demand, which is, in general, favorable to inflation. On the other hand, the National Bank of Poland has been increasing interest rates sharply for some time, which, formally speaking, leads to a reduction in demand – he explained. “It’s expanding,” he concluded.

Bugaj also noted that “unfortunately, but when he looks at statements from the opposition, he is not thrilled.”


Inflation in Poland – April 2022

Rachel: The RBA faces a very difficult task right now

Dr Rachel, currently on a research fellowship at Princeton University, agreed with Prof Bugaj’s analysis. “The situation is indeed complex and difficult for economic policy in general, and for monetary policy in particular,” he said. “These difficulties are felt by all central banks around the world,” he added.

– The European Central Bank, the Bank of England, the Federal Reserve (officially the Federal Reserve System – editor’s note) now have a dilemma. Inflation has increased everywhere, in Poland it is slightly higher than in other regions, but it has increased everywhere – he noted.

Program experts were asked whether the inflation problem in Poland would get worse or on the contrary.

Inflation is alarming, over twelve percent. All expectations indicate that it will continue to grow over the next few months. With such levels of inflation, it is difficult to predict this inflation well. Now the expectations are fifteen to twenty percent, so that’s a pretty wide range,” Rachel replied.

He admitted that “he is concerned about signals coming from expert circles that inflation is consolidating in the sense of inflation expectations.”

– The latest survey of NBP experts shows that they predict that inflation in the next four years will be at the level of six, maybe more (percent). This is a definitive dismantling of inflation expectations and the NBP’s inflation target. Therefore, the NBP is now faced with a very difficult task: on the one hand, to re-anchor inflation expectations, on the other hand, to do it relatively gently, creating a soft landing effect so that it does not there will be no recession or collapse – he explained.

Deputy Prime Minister on prices: everything will become more expensive

Professor Bugaj, when asked about this, pointed out that inflation is not only an economic process, but also a social and political process. “Behaviour and psychology play an important role in this process,” he said.

Rachel: All expectations are that inflation will continue to rise over the next few monthsTVN24

“I wouldn’t vote for Glapiński”

The program asked whether if Adam Glapiński had acted earlier, it would have been possible to avoid the problems associated with, among other things, high inflation.

– If I were in parliament today, I wouldn’t vote for Glapiński, Bugaj said, referring to the expected vote in the Sejm on Glapiński’s nomination for the second term of the NBP leader. “But not because he was late, because he was a little late, in my opinion,” he reserved himself, without developing the thought further.

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Finally, Bugaj noted that “there is no doubt that suppressing inflation will be unpleasant.” – It’s about who is most unpleasant, if this burden will be fairly distributed – he said.

What does “equitable” mean in this case? – It’s a good question. The assessments and criteria here are largely political and social, not economic, the professor replied.

Main photo source: PAP / Radek Pietruszka

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