Inflation in line with the flash estimate
In accordance with the final data published by Statistics Poland, CPI inflation in Poland remained stable between February and March at 4.9% YoY, in line with Statistics Poland’s flash estimate. Inflation in March was driven up by a stronger growth in the prices of food and non-alcoholic beverages (6.7% YoY vs. 6.2% in February) caused in part by higher egg prices due to reduced supply following losses in egg-laying hen populations caused by avian flu. Inflation was also driven up by price growth edging higher in the “energy” category (13.3% vs. 13.1%), which was attributable, among other factors, to higher liquid and solid fuel prices. An opposite impact came from a drop in the prices of fuels (-4.7% vs. -2.6%), resulting from a recent decline in global oil prices when expressed in PLN. The decline has accelerated in April, which indicates that prices in that category may fall even further. Inflation was also driven down by lower core inflation which, according to our estimates, fell to 3.5% YoY in March from 3.6% in February. The drop in core inflation resulted primarily from slower price growth in the “recreation and culture” (3.9% vs. 5.0%, largely due to lower prices for package holidays in Poland and abroad compared with February) and “restaurants and hotels” (6.1% vs. 6.4%) categories.
Inflation pressures still elevated
Monthly core inflation in March stood at 0.4%, i.e. above its seasonal pattern (ca. +0.2% MoM in a typical March). In our opinion, this shows that inflationary pressures in the Polish economy are still elevated. Core inflation remains elevated due to continued strong growth in the prices of services (6.4% YoY in March vs. 6.6% in February), which substantially exceeds the growth in the prices of goods (4.4% vs. 4.3%). Wage pressures remain the primary driver of inflation in services prices. We forecast that nominal wage growth in the national economy stood at 10.1% YoY in Q1 2025, having decreased from 12.4% in Q4 2024, but it still remains at historically high levels.
Inflation will fall in Q2
We still expect headline inflation to fall to 4.4% YoY in Q2 this year from 4.9% in Q1, so it will remain markedly above the upper band for deviations from the inflation target (2.5% +/- 1 pp). We expect another major fall in inflation, to 3.2%, in Q3. Consequently, we forecast that annual average inflation for 2025 will come in at 3.9% compared with 3.6% for 2024, and then it will fall to 2.8% in 2026. Such an inflation path is consistent with our scenario, in which the MPC will cut the interest rates twice, in May and July, each time by 50bp, and the reference rate at the end of 2025 will stand at 4.75%.
Today’s inflation data, which is consistent with the flash estimate published by Statistics Poland, is neutral for the PLN and yields on Polish bonds.
