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In the 1st quarter of 2008 both the current consumer confidence index, which describes current trends in individual consumption, and the future confidence index, which describes trends expected in the next months, worsened compared with the 4th quarter of last year. The direction and scale of changes in the two consumer indices indicated that the high growth in household consumption recorded in previous quarters may slow.

In May 2008, the two consumer confidence indices weakened. Their level indicated that the favourable economic and financial conditions determining consumption were not sustained in May and consequently one can expect a weaker growth in individual consumption. The outlook on households’ financial situation and the country’s economic condition was much worse than before. The outlook on job prospects and households’ capacity to save also deteriorated.

Despite these unfavourable changes, the outlook on changes in households’ financial situation in the previous 12 months and on the country’s general economic situation was still good in May. This means that households still appreciated their higher incomes and rapid economic growth. But it is worrisome that fears of unemployment rose again because this means that Polish people have not yet noticed any major improvement on the labour market.

In late 2007 and early 2008 consumer prices went up but construction prices decelerated.

According to the Central Statistical Office (GUS), in April 2008 consumer prices (CPI) rose by 4.0% year on year, with the strongest contribution coming from food and household services. CPI inflation has breached the upper limit of deviation from the inflation target set by the Monetary Policy Council (2.5%+- 1 percentage point) and in April stood 0.5 percentage points above the limit.

Compared to April last year, the highest increase was recorded in prices of food (6.8%), household services (6.4%), alcoholic beverages and tobacco products (5.9%), restaurants and hotels (5.8%), transport (3.8%), education (3.2%) and health care (3.2). Prices related to communication, recreation and culture declined. A further decrease was also recorded in prices of clothing and footwear.

In April the annual producer price index (PPI) stood at 2.5% compared with April 2007. A major upward effect came from mining (9.3%), and electricity generation, gas and water supply (5.8%). From January to April, the average monthly increase in producer prices in the manufacturing sector ranged from 1.6% to 2.2%, with producer prices of tobacco and oil products having increased the fastest (respectively over 20% and almost 30%).

Construction prices are decelerating but one should remember about the high reference level of last year. In April 2008 construction prices rose by 6.2%: the increase was slower than in the previous months when it was close to 9%. Despite the fast increase in wages, prices of construction services are declining because construction materials are getting cheaper.

read more » • In the four months to April, sales were 9.8% higher year on year.

read more » • In May 2008 the general climate in the retail sector did not change from April.

read more » • Budget surplus recorded in January-April 2008.

read more » PODCAST • Competitive clusters increase productivity• Wieliczka underground spa in World Heritage site• Polish pavilion at EXPO 2008• Polish universities make a bid for Chinese students• Pakistani businessmen are eyeing Poland with interest as a springboard for trade with the single European market. • Polish artists in the city of Gdansk turn Baltic amber into stunning jewellery worn by top models COMING UP CEE Wind Power>> WEEKLY MARKET ANALYSIS • The coming week’s highlight will be the Monetary Policy Council’s (RPP) Wednesday decision on interest rates. Still pending are retail market and unemployment figures for May, these, however, are not expected to meaningfully influence market sentiment. In line with the market consensus we expect May retail sales to rise 14,8% year-on-year against 17,6% in April. Last week’s “hawkish” remarks by RPP members are proof of the Council’s will to battle inflation. Consequently, on Wednesday RPP will probably raise interest rates by 25 base points to 6,00%. RPP’s post-session statement will probably be rather strict in tone as the Council will want to leave a door open to further interest hikes should the coming months’ inflation and wage figures turn out worse than expected.

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