Poland's CPI slowed down, but only due to statistical effect

According to the flash reading, Poland’s CPI inflation fell in November to 4.6% yoy from 5.0% last month. Compared to the previous month, consumer prices increased by 0.4%. The reading was close to market expectations (Pekao 4.6%, market consensus 4.7%).

CPI vs. core inflation (%yoy)

Source: Statistics Poland, NBP, Pekao Research

To be honest, it was not a very interesting publication. The inflation trends of recent months were maintained. However, we are tempering enthusiasm about inflation drop in November, because it is not a symptom of weakening inflationary pressure. This is largely due to the statistical effect of last year's high reference base (+8.8% mom increase in fuel prices in November 2023). Currently, in November 2024, fuel prices have also gone up, but at a much slower pace, by 2.3% mom. In the longer term, however, we expect a decline in inflationary pressure from fuels due to, among other things, the de-escalation of the Middle East conflict, the easing of oil production cuts by OPEC+ and plans of US President-elect Donald Trump to increase oil production in the US, which, given the expected moderate global demand, will lead to oversupply on the market.

Prices of food and non-alcoholic beverages continued to grow stronger than the seasonal pattern - in November they went up by 0.7% mom. This is still the effect of limited supply of domestic crops, especially fruit, due to unfavourable weather conditions during their growing season. With the end of the domestic season and the increase in imported fruit and vegetables, this problem will gradually disappear, although the risk is unfavourable weather conditions in European food exporters, which will result in limited supply there

What influenced the yearly inflation drop? (November 2024 vs. October 2024)

Source: Statistics Poland, Pekao Research

In turn, based on today's data, we estimate that core inflation increased slightly in November to 4.2-4.3% yoy. Its momentum remains elevated and, worse still, it is stabilizing at these levels, with no signs of weakening pressure. Core inflation remains persistently high (especially in the services sector because of persistently high labour costs). This is currently the main concern for the MPC regarding the prospects for interest rate cuts. We still predict that the cut cycle will start in March 2025, although the macroeconomic situation will not help in making such a decision.

Annualized momentum of core inflation (%, smoothed and seasonally adjusted)

Source: Statistics Poland, NBP, Pekao Research

To sum up, we will end 2024 with inflation close to 5% yoy. Average annual CPI will be at 3.7% in 2024. At the beginning of 2025, we are assuming another acceleration in inflation with a peak in March above 5.5% yoy. Recently, the Polish government passed a law freezing electricity prices for households until at least September 2025. However, this will not protect from a jump in inflation in the first quarter of next year due to the low reference base effect. In turn, at the beginning of the second half of next year, due to base effects, we will see a downward dip to around 4.0% yoy. We will not return to the NBP's inflation target quickly – in our opinion, this won’t be possible before 2026.