Strong but expected jump in Poland CPI in September

The flash estimate of Poland’s CPI inflation for September showed a strong but expected jump to 4.9% yoy. Compared to the previous month, consumer prices increased by 0.1%. This suggests that the September inflation acceleration is not the result of significantly higher current inflationary pressure, but rather the effect of a very low reference base. Let’s recall that in September of last year, free medicines for young people and seniors were introduced, along with limits on cheaper electricity usage.

CPI vs. core inflation (%yoy)

Source: Statistics Poland, NBP, Pekao Research

A quick review of the September reading details indicates that price trends from recent months are continuing. Pro-inflationary risks for the upcoming months remain visible in food prices which rose by 0.3% mom in September, stronger than suggested by seasonal patterns. This is largely due to the limited supply of domestic food crops (especially fruits) resulting from unfavorable weather conditions during their growing season. This will continue to be an inflationary factor for the rest of the year.

On the other hand, fuel prices continue their downward trend initiated in the second quarter, with a further 3.5% drop in September. The biggest factor here is the declining market prices of crude oil. However, the potential for further declines in fuel prices could be quickly constrained by current rise in tensions on the Arabian Peninsula, which may lead to a potential rebound in oil prices.

The low base effect also boosted yearly core inflation which jumped in September to about 4.2-4.3% yoy. However, more interesting conclusions can be drawn from the current inflation momentum. Here, the gradual acceleration of core inflation stands out, which in our view, with the rebound of domestic economy, will continue to progress. This will become an increasingly difficult challenge for the Monetary Policy Council (RPP) and its outlook for interest rate cuts. Among other reasons, we continue to assume that the NBP's interest rates will remain unchanged at least until the end of 2025 (the market consensus assumes the start of a rate-cutting cycle in the second quarter of 2025).

Annualized inflation momentum (6-month moving average, seasonally adjusted)

Source: Statistics Poland, NBP, Pekao Research

To sum up, we have taken a step higher with Poland’s inflation which will remain close to 5% yoy until the end of the year. At the beginning of 2025, we expect another rise in inflation (to about 6% in the first quarter), partly due to further unfreezing of energy prices and again a low base effect. However, from the second half of next year, we will experience a decline to around 4-4.5% due to inverted base effects. We will not return to the NBP's inflation target quickly – in our opinion, this won’t be possible before 2026.