Strong inflation rise is just around a corner

Slight inflation rise in June

The final data has shown that CPI inflation in Poland went up to 2.6% YoY in June vs. 2.5% in May, running in line with the flash estimate published by Statistics Poland (GUS). A stronger growth in the prices of “food and non-alcoholic beverages” (2.5% YoY vs. 1.6%) was the main reason behind the inflation rise. Price growth slowdown in the “fuels” category (1.6% YoY vs. 3.6% in May) and lower core inflation excluding food and energy prices (down to 3.7% YoY in line with our estimation vs. 3.8% in May) had a slightly negative impact on annual inflation.

Prices of services still growing strongly

Monthly core inflation in June, which we assessed to be 0.2%, printed slightly above the seasonal pattern, which indicates that the inflationary pressure is still elevated in the Polish economy. This pressure is particularly visible in the services sector, where inflation in June went down only slightly, printing at 6.1% YoY vs. 6.2% in May. It is worth noting that the anti-inflationary impact of the PLN appreciation on this area is limited, with the elevated wage pressure remaining to be the main pro-inflationary factor. As regards the inflation data breakdown, it is also worth noting the markedly stronger annual growth in the prices of food and non-alcoholic beverages that was mentioned above, which mostly resulted from price growth acceleration in the “fruit” and “vegetables” categories in the wake of the Spring frosts and hailstorms, which will have a negative impact on this year’s harvest. Furthermore, the acceleration of the annual food price growth is broad-based, which suggests that the previously limited impact of the reapplied 5% VAT on the retail prices of food is likely to have become stronger in June.

Inflation to rise markedly in July

We are still of the opinion that inflation will rise markedly in the months to come, mainly due to the discontinuation of protective measures for energy prices and a stronger growth in the prices of food. We expect that the growth in the prices of electricity and gas by approx. 20% MoM will cause inflation to go up to 4.4% YoY in July. In accordance with our forecast, inflation will remain markedly above the upper limit for deviations from the inflation target (2.5% +/- 1 pp.) until August 2025. The inflation path that we expect to see in the coming quarters is consistent with our NBP interest rate forecast, which assumes that the rates will be cut for the first time in Q3 2025.

In our opinion, today’s data on inflation in June is neutral for the PLN and yields on bonds.