Inflation slightly below the flash estimate
In accordance with the final data released by Statistics Poland (GUS), CPI inflation in Poland fell from 4.3% YoY in April to 4.0% in May, coming in slightly below the GUS’ flash estimate (4.1%). Falling prices of fuels (-11.4% in May vs. -8.3% in April), mirroring a recent global decline in PLN-denominated oil prices were the main driver of inflation fall. Core inflation, which we estimate to have dropped from 3.4% YoY in April to 3.2% in May was another reason behind the headline inflation drop. Lower core inflation resulted primarily from a slower price growth in such categories as “health” (slower growth in prices of complementary and alternative medical services), “communication” (mainly as a result of a slower growth in prices of online services) and “recreation and culture” (due, among other things, to lower radio and television fees).
Following a strong drop in April, which was connected with high base effects arising from the restoration of the 5% VAT on basic food products, the rate of price growth in the “food and non-alcoholic beverages” category in May was relatively stable (5.5% YoY vs. 5.3% in April). Energy price growth rate did not change much, either (13.0% YoY in May vs. 13.1% in April).
Inflation pressure cools down
Monthly core inflation in May stood at approx. -0.1%, i.e. close to its seasonal pattern (approx. 0.0% MoM in May), which indicates that the inflationary pressure in the Polish economy is cooling down. It is also worth noting that even though the growth in prices of services (6.0% YoY in May vs. 6.3% in April) is still much stronger than that in the prices of goods (3.3% vs. 4.5%), in May it still fell to the lowest level since January 2020. The downward trend for the prices of services observed over the last couple of months underpins our conclusion of easing inflationary pressures. Wage pressures remain the primary driver of inflation. We forecast that nominal wage growth in the national economy will come in at 8.3% YoY in Q2 vs. 10.0% in Q1, and thus it will stay on a historically high level.
Strong inflation drop anticipated in July
Today’s data mirror our revised medium-term inflation scenario (see MACROmap of 09/06/2025). At the same time, today’s attack by Israel on Iran poses an upside risk to our inflation forecast. Escalating geopolitical tensions in the Middle East will be driving the global prices of oil up, which in turn will drive up the retail prices of fuels in Poland. Nonetheless, we still expect the headline inflation to go down markedly this July. Then, until the end of 2026, it will stay within the range of admissible deviations from the NBP inflation target (2.5% ± 1 pp.). We believe that the inflation scenario presented in the NBP’s July projection will be similar. We think that the MPC is most likely to cut interest rates by 50bp again in July, when they see the results of the projection. However, bearing in mind the statements made by some MPC members over the last couple of days, we believe that there is a substantial risk of the MPC pursuing the alternative scenario, in which the Council will decide in favour of a less extensive cut (by 25bp in July), and then the next interest rate cut (by 25bp again) will not come until Q4 2025.
In our opinion, today’s data on inflation will be neutral for the PLN and the yields on Polish bonds.
