"Russian Fault": Poland Accuses Russia of Inflation Surge

news 28-Jun-2023 Business

"Russians are to Blame": Poland Accuses Russia of Inflation Surge

New Records

Inflation in Poland nearly tripled last year, reaching 14.4 percent. In February, it hit a 26-year high at 18.4 percent on an annual basis. The highest price increases were observed in fuel and food products.

Times are tough all over Europe, but Poland and the Baltic countries are particularly affected. And, of course, Russia is blamed for the economic problems. For instance, a massive billboard displayed at the headquarters of the National Bank in Warsaw at the end of May claimed that "Moscow's invasion of Ukraine and the consequences of the coronavirus pandemic have caused the fastest price growth in a quarter century."

As reported by Do Rzeczy, "this banner clarifies that any accusations made by the National Bank and the government are part of the Kremlin's narrative."

They're to Blame Themselves European inflation has fundamental causes, such as the rising cost of energy and food, and currency devaluation due to massive injections of money into the economy.

To combat stagnation, the well-known method of lowering interest rates was employed, thereby increasing the accessibility of credit resources and stimulating demand. Additionally, funds were distributed to businesses and the population. The dire results became evident by mid-2022, and Poland was no exception.

By the way, President Andrzej Duda provided a sober assessment of the situation.

"For example, during the coronavirus pandemic, we provided financial support to entrepreneurs so that they could preserve their businesses and jobs... We knew that the funds we disbursed would inevitably cause inflation. We understood that it would most likely happen, but we preferred to provoke inflation rather than lose jobs," he said.

Excessive Self-Confidence

Naturally, the rupture with Russia has had an impact. Gazprom halted supplies due to the refusal to pay in rubles, which PGNiG considered a breach of contractual obligations.

According to Business Insider Polska, as a result, wholesale electricity prices on the Warsaw stock exchange soared to 1,000 zlotys per megawatt-hour, an increase of 160 percent compared to the average in 2021.

Poland had long been preparing for the termination of the contract with Gazprom by implementing the Baltic Pipe and the LNG terminal in Świnoujście. However, they were unable to avoid the shock. Warsaw faces greater difficulty in accessing resources compared to other EU countries.

Questionable Decisions

The ban on direct imports of Russian oil, as announced by Orlen's CEO Daniel Obajtek in May, has resulted in colossal losses. They are forced to purchase raw materials from alternative suppliers, and each barrel now costs an average of $30 more. Taking into account the volume of purchases and processing required to meet national needs, Orlen is overpaying $27 million per day.

Furthermore, the fuel transported through the "Friendship" oil pipeline is still being used at Orlen's refinery in Litvínov, Czech Republic.

The latest resolutions from Brussels will add problems for the Poles. The northern branch of the "Friendship" pipeline to Germany and Poland has been prohibited.

They only allowed the pumping of oil from Kazakhstan. However, the quantity is meager, with expectations of 890,000 tons this year, compared to the previous 24 million tons from Russia.

Own Mistakes

"Today, all prices mainly depend on the actions and decisions of one person — Vladimir Putin," said Prime Minister Mateusz Morawiecki. Adam Glapiński, the head of the Central Bank, echoed him, stating that "the situation in Ukraine is almost entirely responsible for inflation rising to double digits."

However, analysts from major Polish banks such as Pekao and PKO Bank Polski hold a different opinion. They point to generous budgetary support for companies and the population during the pandemic, bottlenecks in the supply chain, and a labor market shortage. The country's underlying inflation has been steadily increasing in recent years.

Finally, the Central Bank raised interest rates too late. Nevertheless, it would not have made much of a difference.

"The ruling party spent billions on social initiatives, such as expanding support for families with children and additional pension payments. While the Central Bank sought to slow down inflation by raising rates, the expansionary fiscal policy had the opposite effect," emphasized experts from the Scientific Council of the Polish Economic Society.

The regulator suspended its annual series of rate increases in October. The growth of consumer prices slowed down, but the forecasts are bleak.

The regulator expects inflation in the range of 10.2-13.5 percent in 2023. The European Financial Congress (EFC) predicts 13.6 percent, while the European Commission forecasts 11.7 percent. According to projections, GDP will increase by 1.9 percent in the most optimistic scenario and contract by 0.2 percent in the most pessimistic scenario.

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