Unexpected decline in food prices lowered inflation
According to Statistics Poland (GUS), CPI inflation fell to 2.5% YoY in June, from 3.1% in May, printing in line with the flash estimate. A surprising driver of the decline was slower price growth in the food and non-alcoholic beverages category (-0.2% YoY in June vs. 0.5% in May), which drove headline inflation down by approx. 0.2 pp. The data came as a considerable surprise to us, as MoM prices fell for the second consecutive month (down by 0.7% in June following a 1.0% decline in May), which is unusual for this time of year. We will attempt to explain this phenomenon in our next MACROmap.
The slowdown in food and non-alcoholic beverage price growth was broad-based across product categories. It was driven primarily by sharp declines in fresh berry prices and slower growth in the prices of fresh stone fruit and pome fruit than a year earlier. The pronounced fall in berry prices occurred despite unfavourable agrometeorological conditions in H1 2026 (drought and frost). Against this backdrop, the continued slowdown in vegetable price growth, mainly reflecting lower prices of cucumbers, tomatoes and peppers, was also surprising. Lower price growth in the live animals, meat and other edible parts of slaughtered land animals category also contributed to the slower growth in the food prices. This reflects a current decline in pigs and poultry purchase prices, driven by increased supply. Food price growth was also dampened by slower price growth in the sugar, confectionery and desserts category, mainly due to falling chocolate and cocoa prices.
De-escalation in the Middle East lowered inflation
June saw a de-escalation of the conflict in the Middle East and a decline in global oil prices. This was reflected in a 7.4% MoM fall in prices in the fuels and lubricants for personal transport equipment category and a decline in annual price growth to 5.3% YoY from 12.3% in May. The decline in prices in this category lowered headline inflation by approx. 0.4 pp between May and June. Lower oil prices also contributed to slower price growth in services directly dependent on transport costs. Price growth in the package holidays abroad category eased to 8.6% YoY from 10.4% in May, while prices for international passenger air transport fell by 13.7% YoY after increasing by 10.0% in May. Together, price changes in these two categories lowered headline inflation by approx. 0.08 pp and core inflation by approx. 0.15 pp between May and June. According to our estimates, core inflation excluding food and energy prices stood at approx. 3.0% YoY in June, compared with 3.1% in May. The data therefore indicate that the second-round effects of the supply shock associated with the conflict in the Middle East remained limited and were confined to selected service categories.
De-escalation in the Middle East lowered inflation
July brought a renewed escalation of the conflict between the US and Iran, including attacks on vessels in the Strait of Hormuz. This led to the breakdown of the ceasefire, reduced traffic through the Strait and a marked increase in global oil prices. Domestic factors are also adding to inflationary pressures. Remarks by NBP Governor A. Glapiński that were more dovish than expected increased expectations of an interest rate cut and contributed to a weaker PLN (see MACROmap of 13/07/2026). In addition, the government's intervention in the retail fuel market ended on 1 July. The standard 23% VAT rate was reinstated and the fuel price cap mechanism was removed, resulting in an immediate increase in fuel prices of more than 10%. Despite these developments, we expect inflation to remain close to the NBP target in July and August. Such an inflation profile could prompt the MPC to deliver a one-off 25 bp rate cut as early as September. We will discuss this issue in greater detail in our next MACROmap.
Today’s data on June inflation are neutral for the PLN exchange rate and Polish bond yields.
