Mon. Jan 24th, 2022

Barbara Kaczor has taken on board the disruption caused by the Covid-19 pandemic. But the 41-year-old from Czestochowa in southern Poland found dealing with this year’s rapid rise in prices more of a struggle.

“When you go shopping, you spend so much money that you do not know what you spent it on. I understand that prices are changing, but what is happening now is just crazy, ”she said, as she cut off the increases in the cost of everything from butter and tomatoes to petrol. “Believe it or not, last year with the start of Covid was much easier.”

Kaczor is among millions of Poles who feel the pinch. Annual inflation reached 7.8 percent last month, the highest level for two decades, and the fourth highest in the EU. With energy tariffs rising more than 20 percent and gas prices next year by more than 50 percent, consumers expect more pain and the topic has fueled the political agenda.

Many of the developed world struggle with a similar pattern. But for Poland’s ruling Law and Justice Party (PiS), unbridled inflation is a particularly difficult issue. The Conservative-Nationalist government came under fire at home and abroad over democratic backlash. But despite these battles, it remained the most popular party thanks in large part to its success in improving the lot of less affluent Poles.

“PiS won voters with a very simple promise: you will be better off for it; your wealth will increase. High inflation makes it much harder to keep that promise, which is why it is so dangerous for this government, ”said Marcin Duma, head of the IBRiS polling agency in Warsaw.

“Inflation is especially painful for those people who have seen their wealth grow over the past five or six years. They could go on holidays to buy things they could not before. And now suddenly their bills go up and they can not spend on the things they have become accustomed to. ”

Tadeusz Koscinski, Poland's Minister of Finance, listens during a meeting

Tadeusz Koscinski, Poland’s finance minister, says high inflation figures were ‘something that needs attention, but not great panic’ © Thierry Monasse / Getty

For Kaczor, who works for a company that does recordings and offers languages ​​on the side, the rise in prices has meant longer hours to get around and fewer vacations and trips to the theater. “Sometimes you have to decide what a priority is,” she said. “Above all, you have to pay the bills.”

Businesses are also concerned. Marcin Nowacki, deputy head of the ZPP Employers’ Association, said while not all companies still feel the impact, inflation is “the biggest threat for next year”, adding: “If it stays and goes above 10 per cent, it will greatly be difficult, and we will all feel it, both Poland and businesses. ”

Poland’s opposition tried to seize the issue and accused PiS of fueling the problem through reckless spending. This month it projected “PiS = high prices” to the ruling party’s headquarters in Warsaw. Opposition lawmakers unveiled a banner with the same message during a parliamentary session.

PiS officials argue that – as in much of Europe – inflation was driven by external factors such as energy prices and the disruption caused by the pandemic.

The government has announced a package of 10 billion zlotys ($ 2.5 billion) of temporary tax cuts on energy and fuel, and also plans to reduce VAT on food. It also called for the reform of the EU’s emissions trading system: prices for carbon permits more than doubled this year.

However, analysts say external factors are only part of the story. High energy prices have been exacerbated by Poland’s aging, coal – intensive energy system, which makes the country particularly exposed to rising carbon permit prices. On top of that, fiscal and monetary policies have remained loose, even though the economy has grown at almost 5 percent in recent years and labor shortages have put upward pressure on wages. Polish inflation was among the EU’s highest even before this year’s boom.

“We are… Paying the price for the mistakes of previous governments and the lack of investment in the green transition. Our energy system is outdated and has high emissions and therefore we have to obtain more carbon emissions permits than other countries,” Hanna Cichy said. an economist at Polityka Insight in Warsaw, said.

“There is a lot of difficult demographic pressure, and there is also a competency gap: not only are there not enough workers, but we do not have the right skills to fill the gaps in the market.”

High inflation figures were “something that requires attention, but not great panic”, said Tadeusz Koscinski, Poland’s finance minister. “The most important thing for us as a government is to control the emotions and make sure people do not think it is a permanent situation.”

Except for an intensification of the pandemic, however, economists doubt that inflation will soon return to the 2.5 per cent targeted by Poland’s central bank. “Core inflation is above 4 percent and strong, so you should expect inflation to stay above 7 percent next year,” Cichy said. “It is very unlikely that it will return to the central bank’s target in 2023.”

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