Food price drop in May sharper than anticipated
According to Statistics Poland, CPI inflation edged down to 3.1% YoY in May, from 3.2% YoY in April, running in line with the flash estimate. Inflation was driven down primarily by a slower price growth in the “food and non-alcoholic beverages” category (0.5% YoY in May vs. 1.9% in April, with inflation falling by approx. 0.4 pp. due to that slowdown). The figures came in as a major surprise, with prices going down by as much as 1.0% MoM in May, which is not typical for this time of the year. The sharpest drop was recorded for the prices of vegetables (-7.8% MoM). It was broad-based on top of that, and marked by a significant decline in the prices of cucumbers, tomatoes, peppers, cauliflowers, and asparagus. The prices of vegetables may have fallen in May in the past, but historically, the scale of this year’s decline is unusually high. We believe this is due to a combination of factors: an ample remaining supply of last year's crops, alongside an abundance of imported vegetables. Prices went down in the “live animals, meat, and other parts of terrestrial slaughter animals” category as well (-0.7% MoM), mainly due to the falling prices of pork and poultry. The prices of pork were driven down by the purchasing prices of pigs, which were historically low due to oversupply. The drop in poultry prices resulted from a supply rebound following previous production losses caused by avian diseases in the EU market. The prices also went down in the “oils and fats” category (-1.8% MoM), driven primarily by the falling prices of butter, just as we had expected. It is also worth noting that these lower prices are driving down the cost of other animal and vegetable fats used as butter substitutes. Prices dropped in the “sugar, confectionery and desserts” category (-0.5% MoM) as well, with two product groups requiring particular attention, namely sugar, whose prices are dropping continuously due to oversupply, and chocolate, where the decline is facilitated by lower prices of cocoa. Prices also edged down in the “milk, other dairy products and eggs” category (-0.1% MoM), driven by the falling prices in the global dairy product market.
Commodity shock gradually spills over into core prices
Annual inflation in May was driven up by stronger growth in the prices of “fuels and lubricants for personal transport equipment” (12.3% YoY vs. 8.4% in April), which in turn was driven by last year’s low base effect. Notably, also “recreation, sports and culture” had the same effect on inflation, with prices in this category going up by 5.6% YoY vs. 4.6% in April. The prices were boosted by stronger growth in the costs of package holidays, particularly abroad, which we believe was largely attributable to the growing costs of air passenger transport, and boosted annual inflation by 0.07 pp. According to our estimates, core inflation excluding food and energy prices stood at approx. 3.1% YoY in May (highest since September 2025), which was above the level recorded in April (3.0%). The core inflation data indicates that the commodity shock is gradually spills over into a growth in prices of core goods and services
Deescalation in the Middle East as a downside risk factor for the inflation forecast
In our short-term scenario, inflation will rise markedly in Q4 after substantial decline in Q3 (see MACROmap of 08/06/2026). The preliminary deal between the US and Iran to reopen the Strait of Hormuz, extend the ceasefire and lift the blockade of Iranian sea ports that was announced by President D. Trump yesterday is a substantial downside risk factor for our forecast. The agreement is conducive to a decline in the prices of oil, coal, gas, and other energy commodities. A durable downward adjustment of the anticipated energy commodity price trajectory will curb the pressure on food price and core price growth. Furthermore, the improvement in weather seen over the last couple of weeks carries a downside risk to our vegetable price trajectory forecast. Consequently, the local inflation peak expected for December 2026 may fall below the upper band for admissible deviations from the NBP target (2.5% +/- 1 pp.), which would be conducive to NBP rate stabilisation that we expect to see in the coming quarters. The main factors that carry uncertainty for the short-term inflation scenario include whether the preliminary deal between the US and Iran turns out to be a lasting one, and how long the government intends to intervene in the fuel market (lower VAT and a cap on wholesale price) after the excise tax on fuels is restored to the previous level tomorrow. We will prepare our revised inflation scenario when we have learnt the details of the deal between the US and Iran, which is due to be signed on Friday.
Today’s data on inflation in May is neutral for the PLN and the yields on Polish bonds.
