Inflation

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” The words of John Maynard Keynes, who clearly knew a thing or two about governments and their propensity to spend other folks’ money with little thought for the consequences, to say nothing of the voters, who aid and abet them.  Be that as it may, what it the latest inflation data in Poland?

In June, inflation stood at 2.6 per cent, year on year, compared with 2.4 per cent on the same basis in May, and 2.2 per cent in April, according to the Central Statistical Office (GUS).  At the same time, the Future Inflation Index, which forecasts the direction of changes in prices of consumer goods and services in Poland a few months in advance, fell in July by 0.8 points, the Bureau of Investment and Economic Cycles (BIEC) reported. In the opinion of the authors of the report, the recent price increases may thus be temporary. As the BEIC commented that “the current increase in inflation, caused mainly by higher prices of food, may be of short-term nature. Prices of raw materials on global markets have stabilised, and some, as in the case of crude oil, have recently decreased.”

While there is never room for complacency when it comes to inflation, the figures do not suggest a programme of deliberate wealth confiscation by the government. On the contrary, in an election year, the government and the opposition would like to give the impression that they are the instruments by which the wealth of the citizens will actually increase, although history suggests that that is usually the root cause of the inflation problem in the first place.

Thus, the Civic Coalition, the opposition grouping to fight the forthcoming Polish parliamentary elections whose constituent parties are yet to be finalised, has, in such of its programme as has been made public to date, pledged to continue the Law and Justice party government’s increased social spending, on the 500 plus and other new benefits. Indeed, the Coalition’s own social plans will cost as much as PLN 20 billion a year as it plans to cut pension contributions and reduce the burdens on low paid and young workers.

Other proposals, as outlined by party leader Grzegorz Schetyna at a party conference in Warsaw on Saturday, include halting the use of coal power by 2040, allowing civil partnerships including for same-sex couples, state funding for in-vitro fertilisation and the overturning of the Sunday trading ban imposed last year. The party also intends to introduce an “act of democracy renovation” following an election win to undo most of Law and Justice’s judicial changes, Schetyna said.

The Civic Coalition said that it wished to reduce the burden on employees rather than broadening unconditional family and pension payments, while also reforming education and health care, as well as boosting state support for the elderly and disabled. “We want to heal Poland together with you and for you,” Schetyna said. He offered to work with other opposition parties in the upcoming ballot, repeating a coalition formed to fight the European parliamentary elections in May.

Absent a more charismatic leader for the opposition coalition and a set of policies that offers something more sustainable than spending – opposed to investing – yet more taxpayers’ money, it seems unlikely the Coalition will succeed in dislodging the government this time. Not only is Law and Justice able to claim that it has delivered on its key promises, it is also able to claim that this is not harming the economy.

And the latest figures are good. As announced by GUS, Poland had a foreign trade surplus of around PLN 900 million in the first five months of this year, compared to a deficit of PLN 5.8 billion in the same period last year. Average wages in Poland rose 5.3 per cent in June compared with the same month last year, lower than the forecasters’ consensus of 7.2 per cent, while employment in the business sector (for firms with more than nine employees) actually accelerated from 2.7 per cent to 2.8 per cent on an annual basis, above the market consensus of 2.6 per cent.

Of course, whoever wins the election is unlikely to find the next few years quite so benign. And with the government budget deficit expected to rise from some 0.4 per cent of GDP in 2018 to closer to the Maastricht treaty limit of 3 per cent by 2020, there will be less room for manoeuvre when dealing with any downturn. But if the past is another country, the future is another place all together.

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