Poland CPI (% yoy)

Source: Statistics Poland, NBP, Pekao Research

The lower than previously expected March inflation reading is because of core inflation. According to today's data, we estimate that it decreased to around 3.5% yoy in March. Thus, for the first time since mid-2021, it fell into the range of permissible deviations from the inflation target. The impact on prices of the very large increase in excise tax on tobacco products is noteworthy, as it was spread over the entire first quarter (pre-emptive action) instead of focusing on March (the statutory time of higher excise tax introduction). Since the beginning of 2025, tobacco products have become almost 7% more expensive. The momentum of services inflation is decreasing, but as expected, very slowly. With the observed falling growth of labour costs, this process will continue, although still at a "snail's pace".

CPI - contribution of goods and services (% yoy, pp.)

Source: Statistics Poland, NBP, Pekao Research

Fuel prices also supported lower inflation, falling by 2.0% compared to the previous month. The prices of industrial and energy raw materials, including crude oil, have been falling sharply recently as a result of uncertainty and concerns about a slowdown in global economic growth (see the trade war initiated by the US). We expect to see this in the near future also in the form of lower prices at petrol stations, which we wrote more about in one of our latest reports. In general, this will be a factor keeping the inflationary pressure on goods low.

In turn, food prices continued to have a pro-inflationary effect, rising by another 0.2% in March. The most problematic situation is still on the egg market (egg prices have risen by 12% in the last 5 months). The problems here are also structural - a lower number of chicks and potential layers and the consequences of bird flu. This is not good news for consumers in view of the approaching Easter holidays... However, the downward trend in sugar prices has been continuing for several months. In the last 12 months, its price has fallen by almost 35%. Considering last year's poor domestic crop harvest, as well as the expected low supply this year due to difficult weather conditions (mainly hydrological droughts), we expect that growth of food prices will continue to be elevated throughout 2025.

Since September last year, CPI has remained around 5%, forming a solid plateau, but the coming months will already bring a solid decline in inflation. This will be greatly supported by the high reference base effect from last year on non-base inflation goods (food, energy). Inflation will fall below 4.5% yoy in April. In turn, at the beginning of the second half of the year, due to further base effects, we will see a downward dip to almost 3.0% yoy. By the end of 2025, inflation may even fall below this level. This proved sufficient to encourage the MPC to cut interest rates in Poland. We expect cuts at the next two decision meetings – both in May and June – each by 50 bps.

Inflation outlook (Pekao forecast, % yoy)

Source: Statistics Poland, NBP, Pekao Research