Core inflation at its lowest level since November 2019
In accordance with final data published by Statistics Poland (GUS), CPI inflation in Poland declined from 2.9% in September to 2.8% in October, in line with Statistics Poland’s flash estimate. The main driver of the decline in inflation was slower growth in prices in the “food and non-alcoholic beverages” category (3.4% in October vs. 4.2% in September). The weaker price growth in this category reflected lower growth in fruit and vegetable prices (a bumper harvest effect), as well as in butter prices (owing to overproduction of milk among the world’s main exporters of dairy products). Lower core inflation also contributed to the decline in headline inflation, as, in line with our estimates, it fell from 3.2% YoY in September to 2.9% in October, its lowest level since November 2019. This was driven by slower price growth in, among others, “miscellaneous goods and services”, “recreation and culture”, “furnishings, household equipment and routine household maintenance”, “clothing and footwear” and “education”. It is also worth noting that monthly core inflation fell in October to 0.0% MoM from 0.2% in September, coming in below its seasonal pattern (+0.3% MoM). In our view, this points to weakening inflationary pressures. Higher price growth in the “fuels” (-1.8% vs. -4.9%) and in “energy” (2.6% vs. 2.3%) categories had the opposite impact on headline inflation.
MPC set to move forward with one more interest rate cut
What is particularly notable in the breakdown of October inflation data is that the growth in services prices slowed from 5.8% YoY in September to 5.6% in October. Consequently, even though it is still much higher compared with the prices of goods (1.7% YoY in October), its decline, coupled with the drop in core inflation, suggests that inflationary pressures are gradually easing. We expect headline inflation to run close to the inflation target over the coming quarters. In Q4 2026, inflation will accelerate to 3.5%, mainly due to low base effects in food and fuel prices. Given the prospect of inflation temporarily falling below the target in Q1 2026 (we forecast inflation at 2.3% then), we see a downside risk to our scenario in which the MPC will move forward with one more 25bp interest rate cut in Q1 2026. An additional risk factor is the public comments from some MPC members pointing to differences in their views on the appropriate target level of interest rates.
In our view, today’s Q3 GDP data, which is consistent with market consensus, is neutral for the PLN and yields on Polish bonds.
