Today's reading is a preliminary estimate of January inflation, limited to several key price categories and based on the old consumer basket weights used last year. In mid-March, the StatOffice will revise it based on updated weights, taking into account the newest structure of household consumption. The mechanics of the weight changes and their impact on the final data are difficult to predict, but we see a greater probability that they will result in a downward revision of the preliminary January reading. However, this will not change the tone of this reading supporting the "hawkish" rhetoric...

CPI vs. core inflation (%yoy)

Source: StatOffice, NBP, Pekao Research

Okay, let's dive into the details of January's inflation reading. What surprised us upwards were food prices, which rose above the seasonal pattern in January (by 1.6% mom). From the preliminary estimate, we do not know exactly what was behind this hike, but we are betting on the most volatile fruit and vegetable prices. Fuel prices, in line with expectations, rose by almost 2% compared to the previous month. As for energy prices, they rose by 1.4% mom, mainly due to the entry into force of new gas distribution rates, which increased the average household bill by 5.5% and CPI by almost 0.15 percentage points. Due to the extension of “freezing" on electricity prices and suspension of the capacity fee, we will not see any major price changes for energy until at least the end of the first half of the year.

There will be no official publication of core inflation from the NBP this month (also due to weight changes of the consumer basket). However, according to our estimates based on today's data, it accelerated in January to about 4.1% yoy from 4.0% in the previous month. Compared to the previous month, core prices increased by about 0.5%. Here, January is also a month of great uncertainty - at the beginning of the year, many industries update their price lists once, adjusting to the prevailing economic situation and expectations for its shape in the future. It is also worth noting the increase in the prices of alcoholic beverages and tobacco products (+1.5% mom), which is the result of the entry into force of new, higher excise tax rate on alcohol and perhaps adjustment measures before the very large increase in excise tax on tobacco products from March. Core inflation at the beginning of the year could also have been increased by the negative effect of change in the list of reimbursed medicines. Many categories are also dependent on the minimum wage which increased by 8.5% from the beginning of 2025.

We are entering 2025 with higher inflation, and in the coming months we assume its further acceleration with a peak in March slightly above 5.5% yoy due to the low reference base effect. In turn, at the beginning of the second half of the year, due to base effects, we will see a downward dip below 4.0% yoy. We do not expect a jump in inflation in the fourth quarter caused by the unfreezing of energy prices for households. Tariff prices proposed by energy suppliers and approved by the regulator will probably no longer differ from current frozen prices. A government extension of the frozen prices is also possible.

"Sticky" and long-term elevated core inflation (especially in the services sector) will be a nuisance. We will not return to the NBP inflation target (understood as the range of permissible deviations from the target) permanently any time soon – in our opinion, this will not be possible before the first half of 2026.

Inflation outlook (Pekao forecast, %yoy)

Source: StatOffice, NBP, Pekao Research

With unfavourable macroeconomic factors (including persistent core inflation, solid economic growth), at some point the NBP projection will show a downward trend in inflation below the target over the forecast horizon. We assume that in July (together with the new inflation projection) this will prompt the MPC (Monetary Policy Council) to cut rates – by a total of 100 bps by the end of 2025 (to 4.75%) and another 125 bps in 2026 (to 3.50%).