EUR/PLN: Zloty to face significantly higher volatility amid wage-price spiral – Commerzbank

The Polish central bank is fearing another wave of a wage-price spiral. A fresh leg higher of inflation could expose the zloty to significantly higher volatility, economists at Commerzbank report.

Wage-price spiral

“Another round of minimum wage hike is planned during early H2. The government may imagine that it is necessary to offset higher living costs by raising wages, but this is also the perfect recipe for starting off a wage-price spiral, which central banks the world over fear.”

“While the Polish central bank (NBP) has been hiking rates in decent 100bps steps, this will likely not be able to keep up if inflation drivers were to take a fresh leg higher from here. And inability to keep up would mean exposing the zloty exchange rate to significantly higher volatility.”