Poland wants to boost its minimum wage by 20% — and it's got economists worried

Poland's authorities has projected a grounds emergence successful the nationalist minimum wage of much than 23%, a determination economists are disquieted volition exacerbate double-digit inflation.

The ruling Law and Justice (PiS) enactment announced plans past week to summation the existent monthly minimum wage of 3,490 zloty ($859.60) — already acceptable to summation from July 1 — to 4,242 zloty successful January 2024 and 4,300 zloty successful July 2024.

The authorities is seeking a 3rd word successful office, an unprecedented feat successful Poland's antiauthoritarian history, arsenic the state heads to the polls this fall. The latest polling gives the PiS a slim pb implicit the KO (Civic Coalition) fronted by erstwhile European Council President Donald Tusk.

In an interrogation with state-controlled quality bureau PAP past month, Polish Family and Social Policy Minister Marlena Malag said the minimum wage summation was designed to assistance radical header with the accrued outgo of living.

Consumer terms ostentation successful Poland eased successful May, but inactive accrued 13% year-on-year. Prices stagnated successful month-on-month presumption for the archetypal clip since Feb. 2022, successful portion owed to a normalization of vigor costs.

National Bank of Poland Chairman Adam Glapinski suggested earlier this period that the Monetary Policy Council whitethorn look to chopped involvement rates aboriginal this twelvemonth if terms rises gaffe to single-digit levels.

Rafal Benecki, main economist astatine ING Poland, said successful a probe enactment past week that this would beryllium "premature."

"In Poland, the gait of disinflation volition visibly dilatory successful the 4th fourth and a further diminution to people cannot beryllium taken for granted. Especially successful the discourse of the expected rebound successful economical enactment and expansionary fiscal policy," helium said.

The authorities has accrued the authorities fund shortage this twelvemonth by 24 cardinal zloty to 92 cardinal zloty, and plans to summation the country's Family 500+ kid payment programme adjacent year, Benecki noted, on with the sizable summation to the minimum wage.

"In our view, this volition construe into continued double-digit maturation successful mean wages successful the economy, keeping halfway ostentation elevated," Benecki said.

"In this context, a imaginable complaint chopped astatine the extremity of 2023 is much apt to beryllium a one-off move, portion the regular monetary easing rhythm is apt to commencement successful the 3rd quarter."

He highlighted that Poland's halfway ostentation representation remains the slightest favorable successful the Central and Eastern Europe (CEE) region, portion developed marketplace cardinal banks person struck a hawkish tone, suggesting that they spot upside risks to inflation.

"In our view, to bring ostentation down to the people requires a diminution successful the wage maturation complaint beneath 5% YoY and a paradigm displacement successful economical policy, i.e. little depletion and much investment," Benecki said.

"The caller fiscal loosening raises concerns astir whether the favourable GDP creation seen successful the archetypal 4th volition proceed successful the pursuing quarters."

Further loosening a concern

Polish firm assemblage wage maturation declined to an yearly 12.1% successful May, but remains a interest for economists arsenic acold arsenic the medium-term ostentation outlook is concerned.

What's more, the PiS is expected to further loosen the fiscal purse strings up of predetermination crunch time.

"With the labour marketplace inactive precise choky and further pre-election fiscal stimulus apt to beryllium announced successful the coming months, the risks are skewed to wage and ostentation pressures proving adjacent much persistent than we presently envisage," said Nicholas Farr, emerging Europe economist astatine Capital Economics.

He highlighted that fixed a "notable increase" successful the fig of workers that person minimum wage successful Poland successful caller years, the interaction of the latest summation is apt to beryllium "meaningful."

"Based connected estimates that astir 3 cardinal workers person minimum wage, a backmost of the envelope calculation would suggest that the summation could adhd astir 4%-pts to wage maturation adjacent twelvemonth (relative to if the minimum wage was held constant)," Farr said successful a probe enactment past week.

"That said, the existent interaction could beryllium adjacent larger since different authorities benefits are besides tied to the minimum wage, and the summation is apt to mean that different employees (i.e those who are not connected the minimum wage) volition request larger wage rises too."

The caller argumentation proposals are "even much worrying" with wages inactive increasing successful double-digit yearly percentages and unemployment remaining adjacent a grounds low, Farr noted.

"The upshot is that we person go much acrophobic that wage and terms pressures whitethorn beryllium stickier than we expect implicit the coming quarters, and the risks to our already supra statement forecast for involvement rates to extremity 2024 astatine 5.50% (from 6.75% now) look tilted to the upside."