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Inflation is the name of the game in Polish politics

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WARSAW — There’s one subject that’s top of the agenda in Poland as the country readies for next year’s parliamentary election and it isn’t the war in neighboring Ukraine or long-running battles with the EU over rule of law — it’s inflation.

Poland is seeing some of the fastest price rises in the European Union, with inflation in June hitting 15.6 percent in annual terms — the highest rate since 1997. That’s prompting politicians to build their election campaigns around who’s to blame.

For the ruling nationalist Law and Justice (PiS) party, the culprit is in the Kremlin, with blame being heaped on Vladimir Putin for invading Ukraine and stoking high prices by squeezing 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 PiS and Poland’s de facto ruler, calls it “Putinflation.” 

He said government policies were only responsible for 3 to 4 percentage points of the inflation rate and that the opposition claim that his government is to blame is “an incredible scam.”

Putin “led to an increase in the price of natural resources … and they have led to higher prices around the world,” Prime Minister Mateusz Morawiecki said this week.

Donald Tusk, leader of Poland’s Civic Platform | Magdalena Chodownik/Getty Images

The opposition blames the government’s loose money policies and the reluctance of the National Bank of Poland to start raising interest rates until inflation was already surging.

“For the love of God, what happened that in just seven years they have turned Poland, a blooming country and the pride of Europe, to a country where water and bread are problems?” Donald Tusk, leader of the opposition Civic Platform party and a former prime minister and president of the European Council, told a crowd of supporters at a party rally last week.

“That’s the only thing Polish families are talking about, be it at a family lunch or on their way to holidays — if anyone can afford them,” Tusk added.

Pointing fingers

Who gets stuck with the blame will be crucial to the outcome of next year’s parliamentary election, when PiS will be trying for an unprecedented third term of office while opposition parties will try to oust it.

“Both sides have some merit to their claims as to where inflation has come from but they also know it’s not going away fast, so it’s easier to blame inflation on people they don’t like, as that’s what gets through to the voters in the context of the upcoming election,” said Mariusz Zielonka, chief economist with Lewiatan, a business lobby.

A recent opinion poll showed that PiS was ahead with 33.1 percent support, followed by Civic Platform with 24.7 percent, the centrist Poland 2050 party with 10.7 percent, the Left with 9.4 percent and the ultranationalist Confederation with 6.3 percent. If those totals hold, then the anti-PiS parties would be able to form a broad coalition government.

While politicians position themselves, Poles are starting to feel the pain.

A poll by IBRiS, carried out for the Rzeczpospolita newspaper in late June, showed that over 31 percent Polish households are cutting down on food spending, 30 percent plan to tone down or cancel summer holiday travel, and 26 percent plan to use less energy.

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

Analysts expect inflation to peak at over 16 percent sometime in the next few months, with numerous caveats linked to the course of war in Ukraine or to the return of the coronavirus pandemic.

That’s something Kaczyński is hoping for, this week saying that “some experts predict inflation will start to fall this year.” He also cautioned against “brutal” efforts to tamp down inflation, saying: “We want people in Poland to earn well, especially those who have earned very poorly so far.”

But brutal anti-inflationary policies are what’s in store. 

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

The NBP’s tightening is a political problem for the government, as high interest rates have pushed up mortgage repayments, further squeezing family budgets. 

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

The government also reduced personal income tax for the lowest incomes from 17 percent to 12 percent as of July 1, another decision likely to keep prices growing.

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 says: ‘Inflation? Don’t worry, we won’t let you lose your money.’ At the same time, the central bank is raising interest rates,” he said. 

Tusk promised a swift return to good times if the opposition wins 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.

Both the government and the opposition fail to see the complexity behind what drives inflation and don’t have will or intellectual firepower to fight it, said Jan Zygmuntowski, an economist with the Polish Economy Network think tank.

“If the only recipe is further hiking interest rates, 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 state-controlled companies’ profit margins, and work to strengthen the zloty. In the longer run, it should diversify the energy mix — it will take time but there is never too late for that,” Zygmuntowski said.

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