As ING Bank reported, in October employment in Poland increased by 0.5% YoY, while wages rose by 8.4%. The labour market performance likely reflects increasing activity in manufacturing and mining. At the same time layoffs in services, which started after the expiration of the government labour protection scheme, also likely ended. Dangerously, a strong focus is on wages, not productivity.
- The bargaining power of employees is high due to labour shortages but also high CPI inflation.
- Secondly, those high wage dynamics also reflect the spike in commodity prices, including coal, which has revived mining production and power generation and has allowed companies to pay higher bonuses.
- Thirdly, earlier payments of bonuses took place, especially for high earners for whom personal taxes will grow due to tax changes introduced in the “Polish Deal”.
ING Bank expects wages to rise further at the turn of the year, reaching double-digit levels. Employers also plan to increase wages for high-earners, to compensate for a higher minimum wage and an effective decrease in the tax rate for low-earners, to preserve the pay scale. Strong growth in wages is one of the reasons why analysts expect core inflation to remain elevated in 2022, even as the headline number starts to decelerate. Companies are still passing rising costs (including wages) onto consumers, increasing the risk of wage-price spirals into CPI and NBP rates’ forecast.
The solid growth of retail sales confirms the resilience of consumer demand in Poland. It may also result from accelerated purchases due to rising prices and concerns about the growing fourth wave of the pandemic. The share of internet sales in total retail (11.4%) was 3 percentage points higher than in October. The high reading of retail sales was driven by sales of textiles and clothing (55.8%YoY, after 29.3% in the prior month), furniture, radio-tv, household appliances (10.3%YoY, after only 0.2% in October) and other sales (23.8%YoY, after 13.2% in the previous month). These categories are typical for consumer demand.
Accelerating prices are visible in typically demand-driven categories: textiles, clothing, food and other sales. Fuel and energy prices reflect global trends in commodity prices. In addition to strong industrial production, high tariff increases in natural gas and electricity from 2022, as recently announced by the Energy Regulator, support the continued hikes in the National Bank of Poland’s interest rates.
At the same time, reported current production grew at the fastest rate since July, while new orders the fastest since August 2021. This likely reflects the loosening of sanitary restrictions in Asia in September and October last year. In the previous months, local manufacturers reported lower foreign orders, suggesting that their foreign counterparts were unable to increase production, facing shortages in their supply chains. In December, the Polish producers reported a rise in export orders for the first time in four months. How long will this last?
Delivery times increased as well. This suggests that demand continues to outpace production, despite less severe supply disruptions. Sign there is a structural issue in productivity and competitiveness on the supply side. In tandem with rising costs (energy, wages, etc), this again resulted in a rise in reported input prices in December. Companies also increase their purchases, likely fearing renewed problems with supply, given the Omicron variant. Producers may have also increased purchases ahead of expected price increases. This all should add to inflationary pressures as well.