Polish flash CPI at highest since 2012

WARSAW (Reuters) - Polish inflation was at its highest level since 2012 in December as food prices and net inflation accelerated, a flash estimate showed on Tuesday, potentially reigniting debate on the direction of interest rates in central Europe’s largest economy.

Poland’s benchmark interest rate has been at a record low of 1.5% since 2015 and central bank governor Adam Glapinski has repeatedly said he expects rates to remain on hold until his term ends in 2022. But minutes from Monetary Policy Council (MPC) meetings show both cuts and hikes have been proposed.

“The published data reduces the comfort of the MPC ... a higher inflation path will undoubtedly be an argument for the hawkish wing of the council, so rate hike proposals are possible,” Bank Millennium analysts said in a note.

“Nevertheless, in our opinion it may be difficult to find a majority for this in the current council in the coming months.”

Flash CPI for December came in at 3.4%, the statistics office said, well above the 2.9% expected by analysts in a Reuters poll.

“The data is really surprising in terms of the scale of inflation growth ... The increase is mainly due to core inflation,” said PKO BP economist Marcin Czaplicki.

“Any expectations for rate cuts disappear because it’s hard to cut rates at inflation above 3%,” he said.

In November Glapinski said that while he expected rates to remain on hold, if there was to be a change it would more likely be a cut.

Polish 10-year yields PL10YT=RR were up 8.6 basis points at 2.160% at 1015 GMT.

Reporting by Alicja Ptak and Anna Wlodarczak-Semczuk; Writing by Alan Charlish and Gdansk Newsroom; Editing by Pravin Char