Inflation

What is inflation?

Inflation is the general increase in price levels in the economy, causing purchasing power to decline over time. When inflation is 3% annually, the same 100 zł in 10 years will be worth only about 74 zł in today's money. Inflation is measured by Statistics Poland (GUS) using the CPI (Consumer Price Index), which tracks price changes in a basket of representative goods and services. In Poland, target inflation is 2.5% annually, but recently it has been significantly higher.

Impact on savings

Inflation erodes the real value of savings held in cash or low-interest accounts. If your savings earn less than inflation, you're losing money in real terms. For example, with 3% inflation and 1% deposit interest, the real rate of return is -2%. That's why it's important to invest savings in instruments with returns exceeding inflation — deposits above inflation rate, inflation-indexed bonds, stocks, or real estate.

Inflation protection strategies

The best inflation protection is portfolio diversification. Term deposits offer protection only when interest rates exceed inflation. SKARBond government bonds are indexed to inflation and guarantee real returns. Real estate investments traditionally protect against inflation because property prices rise with construction costs. Dividend-paying stocks can also be good long-term protection.

Inflation and loans

Inflation can work in favor of borrowers, especially those with fixed-rate loans. As inflation and wages rise, the relative loan burden decreases — you pay the same installments but from higher income. However, higher inflation usually means higher interest rates, increasing new loan costs. With variable-rate loans (dominant in Poland), rate increases translate directly to higher installments.