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The last two years saw a strong acceleration of economic activity in Poland. With the aim to safeguard the sustainability of economic growth both monetary and fiscal policies were tightened in 2007. Although the surge in headline inflation to well above the central bank’s target of 2.5% has been mostly driven by external shocks, as in other countries, a considerable build up in wage pressures could darken the inflation outlook. Failing to contain inflationary pressures could harm the hard won credibility of the monetary authorities and make it costlier to achieve their primary objective of price stability in the medium term. Despite an uncertain international outlook a tightening of monetary policy is therefore needed to head off overheating and steer the economy towards a sustainable low-inflation growth path, assisted by any further appreciation of the currency. But monetary policy should not bear the whole burden of stabilising the economy. A significant retrenchment in public spending could considerably improve the policy mix.