Narodowy Bank Polski

No Substantial Price Rises Expected by Consumers

Date: 29-07-2011

The latest analysis of individuals’ inflation expectations shows that consumers expect inflation of 4.7% in the coming year.

A central bank which pursues the policy of direct inflation targeting monitors inflation expectations of various economic agents. Together with other factors, they are then taken into account in the monetary policy decision-making process. Given the non-observable character of this variable, central banks apply a range of methods to measure inflation expectations and use, among other sources, survey data.

The NBP examines inflation expectations of market analysts of the financial sector as well as those of enterprises and individuals. This year it is also introducing the NBP Survey of Professional Forecasters. The data on individuals’ inflation expectations posted on the website on 29 July indicate an average expected inflation rate of 4.7% during the next 12 months. This figure is higher than last month’s, when inflation rate expected in the coming months stood at 4.2% . It has to be noted, however, that the public outlook survey in this respect, conducted by the specialized IPSOS company, took place in the first half of July. At that time, the official May CPI index of 5% was already known to the general public, causing widespread expressions of concern in the media (it is worth pointing out that the June CPI index, published after the IPSOS survey, amounted to 4.2%).

Inflation expectation of individuals, who do not deal with economic analysis in their daily lives, reflect to a great extent current inflation and its structure (their react relatively stronger to changes in prices of frequently bought products). Besides, they are shaped by the perception of the current condition and outlook for the economy as well as the financial standing of one’s own household. At this stage it is worth noting that for the last three months the expectations index has been running lower than the CPI index known at the time of the survey, while as recently as March of this year it was higher by 0.8%. In the last months, there has been a marked fall in the number of people with a strongly pessimistic outlook. The percentage of those anticipating that prices will rise faster in the next 12 months than they have done so far fell from over 36% in March to 19.3% in July. Half of the respondents (50.3%) believe that prices will continue to increase at the current rate, while 20.4% are convinced that inflation will decline.

See also: Inflation expectations of private individuals – VII '11

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