Inflation is the name of the game in Polish politics – POLITICO


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WARSAW – There is one topic that is high on the agenda in Poland as the country prepares for parliamentary elections next year and it is not the war in neighboring Ukraine or the battles long standing with the EU on the rule of law – that’s inflation.

Poland is experiencing some of the fastest price increases in the European Union, with inflation in June struck 15.6% in annual terms – the highest rate since 1997. This encourages politicians to build their election campaigns around who is to blame.

For the nationalist ruling Law and Justice (PiS) party, the culprit is the Kremlin, with the blame placed on Vladimir Putin for invading Ukraine and stoking high prices by cutting the continent’s access to natural gas. Poland was one of the first to see Russia cut off its gas supplies.

Jarosław Kaczyński, the leader of the PiS and de facto ruler of Poland, calls it “Putinflation”.

He said government policies were only responsible for 3-4 percentage points of the inflation rate and for the opposition to say their government is to blame is “an incredible rip off”.

Putin “has driven up the price of natural resources…and they’ve driven up prices all over the world,” Prime Minister Mateusz Morawiecki said. said this week.

Donald Tusk, leader of the Polish Civic Platform | Magdalena Chodownik/Getty Images

The opposition blames the government’s loose monetary policies and the National Bank of Poland’s reluctance to start raising interest rates until inflation is already on the rise.

“For the love of God, what happened that in just seven years they have transformed Poland from a flourishing country and the pride of Europe into a country where water and bread are problems?” Donald Tusk, leader of the opposition Civic Platform party and former Prime Minister and President of the European Council, Told a crowd of supporters at a party rally last week.

“It’s the only thing Polish families talk about, whether it’s at a family lunch or on the way to vacation – if anyone can afford it,” Tusk added.

Pointing fingers

Who gets blamed will be crucial to the outcome of next year’s parliamentary election, when the PiS will seek an unprecedented third term while opposition parties will try to oust it.

“Both sides have some merit in their claims about where inflation is coming from, but they also know it doesn’t go away quickly, so it’s easier to blame inflation on people they don’t know. don’t like, because that’s what’s reaching voters in the context of the upcoming elections,” said Mariusz Zielonka, chief economist at Lewiatan, a business lobby.

A recent survey showed that the PiS was in the lead with 33.1% support, followed by the Civic Platform with 24.7%, the centrist party Poland 2050 with 10.7%, the Left with 9.4% and the Confederation ultranationalist with 6.3%. If these totals hold, then the anti-PiS parties could form a broad coalition government.

As politicians position themselves, Poles are beginning to feel the pain.

A survey by IBRiS, carried out for the Rzeczpospolita newspaper at the end of June, showed that more than 31% of Polish households are reducing their food expenditure, 30% plan to reduce or cancel their summer vacation trips and 26% plan to use less of energy.

Unsurprisingly, inflation has hit the poorest hardest, the poll also showed. In the lowest income group — earning up to 2,000 złoty (€425) a month — about two-thirds save on food expenses. This group forms the core of political support for the PiS.

Analysts expect inflation to peak at over 16% in the coming months, with many warnings tied to the war in Ukraine or the return of the coronavirus pandemic.

That’s something Kaczyński hopes for, saying this week that “some experts predict inflation will start falling this year.” He also warned against “brutal” efforts to curb inflation, saying: “We want Poles to earn well, especially those who have earned very badly so far.”

But brutal anti-inflationary policies are what awaits us.

The central bank has raised its benchmark interest rate 10 consecutive times, starting in October from an all-time low of 0.1% to 6.5% on Thursday.

The NBP tightening is a political issue for the government, as high interest rates have driven up mortgage repayments, further squeezing family budgets.

The government has responded with a so-called “credit holiday” plan, allowing mortgage holders to suspend repayments four times this year and four more times in 2023. But it’s a pro-inflationary move, according to the experts.

The government also cut personal income tax for the lowest earners from 17% to 12% from July 1, another move likely to keep prices rising.

The problem with the authorities’ response to inflation is that the government and the central bank are pulling in opposite directions, Zielonka said.

“The government is saying, ‘Inflation? Don’t worry, we won’t let you waste your money. At the same time, the central bank is raising interest rates,” he said.

Tusk has promised a quick return to good times if the opposition win next year.

“The end of PiS will be the end of high prices. My government was able to grab inflation by the throat and strangle it to zero,” Tusk said.

The government and the opposition do not see the complexity of the drivers of inflation and have neither the will nor the intellectual power to fight it, said Jan Zygmuntowski, an economist at the think tank Polish Economy Network.

“If the only recipe is to raise interest rates even further, it will end in a recession and possibly an increase in the unemployment rate,” he said.

“The government should instead tighten its fiscal policy, limit the profit margins of state-controlled companies and work to strengthen the zloty. In the longer term, this should diversify the energy mix – it will take time but it’s never too late for that,” Zygmuntowski said.

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