Economic news:

• INFLATION: The NBP published final data on Poland’s core inflation in January and February. At the beginning of 2025, inflation excluding food and energy prices fell significantly, to 3.7% in January and 3.6% yoy in February. However, this is mainly because of yearly revision of the consumer basket weights, which we wrote about in the commentary to the newest Poland’s CPI data. The picture of fundamental inflation processes did not change significantly at the beginning of the year. Firstly, our measures of “super-core” inflation remained at a high level. Secondly, other measures of core inflation (15% trimmed mean and inflation excluding the most volatile prices) are not as optimistic - the first of these measures increased from 4.3% in December to 4.6% yoy in February, the second fell from 5.2 to 4.9% yoy. Their current monthly momentum is still high. We write more about core inflation later in the report. 
• LABOUR MARKET: In February, wages in the corporate sector rose by 7.9% yoy compared to 9.2% yoy in January. The reading was much lower than the forecast consensus and the wage slowdown itself was evenly distributed across sectors. This is a strong disinflationary signal from the Polish economy. In turn, employment in the corporate sector fell by 3k compared to January and maintained growth of -0.9% yoy. In this case, the reading was in line with expectations and does not indicate a significant deterioration in the condition of the labour market in Poland. We wrote more about the labour market data in the commentary. 
• INDUSTRIAL OUTPUT: Industrial and construction output growth in February turned out to be weaker than expected. The former fell by 2% yoy, compared to the forecast consensus assuming its decline by half that scale (-1% yoy). This was accompanied by a slump in mining production (-12.9% yoy), a weak result in manufacturing (-2.3% yoy) and a good result in the energy sector (+8.1% yoy), due to low temperatures and higher demand for heat energy. In turn, construction output did not change in February compared to (weak) February 2024, with expectations of a 2% yoy rebound. The cold weather could have been to blame, although companies from this sector did not complain in the surveys that it would be a problem this month. We wrote more about this data in the commentary.  
• RETAIL SALES: Retail sales in constant prices decreased in February by -0.5% being a massive disappointment to the market consensus of +3.3%. Full analysis of the retail sales data will be shorty presented in a separate publication - our flash comment published after each major macro data reading.
• FOREIGN TRADE: In the light of balance of payments data for January, the trends of increasing external imbalances have been continued. A deficit of EUR 170 mn was recorded in the current account and a deficit of slightly more than EUR 1.5 bn in the trade account. The three most important observations are: weakness of goods exports (which remained unchanged year-on-year), acceleration of goods imports to 10% yoy (the fastest growth in almost two years) and stabilization of the surplus in the services account. These trends are the result of several factors, including primarily the PLN appreciation and the relative strength of domestic demand in Poland (compared to major trading partners).  
• MONETARY POLICY: Inflation may remain elevated for longer and the uncertainty associated with this does not currently allow for submitting a motion to cut interest rates - informed member of the Monetary Policy Council Wiesław Janczyk. He added that the latest March NBP projection did not increase the need for changes in rates, although the discussion on this matter is open and possible in 2025. On the other hand, another MPC member Przemysław Litwiniuk, spoke in a more dovish tone, suggesting that the cut cycle could begin before July. However, this is not his base scenario. In turn, Gabriela Masłowska from the MPC ruled out an interest rate cut in 1H25. According to her statement, monetary easing may begin at the end of this year or at the beginning of next year. At the same time, Masłowska noted that if only the risk of inflation acceleration were low enough, she would be inclined to support an earlier start of cuts. We stick to our forecast that the interest rate cut cycle in Poland will begin in 3Q25 and by the end of 2025 rates will be cut by no more than 100 bps. 
• CONSUMER: The reading of the current and leading consumer sentiment indicators amounted to -15.2 and -9.8 pts, respectively. These values are ​​similar to last month's, nevertheless, the respondents' answers to detailed questions indicate an increase in optimism of Poles - in particular, the willingness to make large purchases is the highest in four years and a record high percentage of respondents believe that their savings will increase in the coming year. 
• RATING: The Moody's rating agency carried out a periodic review of Poland's rating, but made no changes finally. This means that the credit rating remains at "A2" level and its outlook is still "stable." A prerequisite for any positive action on Poland's rating would be, in Moody's opinion, a significant improvement in the safety situation in the region and lower geopolitical risk. 

"False" fall in core inflation

Data on core inflation completed the picture of Poland’s inflation in the first months of 2025. Similarly to main CPI inflation data, we received data for two months at the same time, but already taking into account updated weights of the consumer basket. Thus, core inflation (the most frequently cited one, i.e. excluding food and energy prices) for January and February went down by 0.4 percentage points compared to previous estimates, to 3.7% and 3.6% yoy, respectively. We would refrain from a one-sided "dovish" interpretation of these readings, because this is only and exclusively a statistical effect of the revision of weights in the inflation basket. Remember that the flash estimate of CPI for January was revised by 0.4 percentage points for this reason, as it turned out, most of this effect was accumulated in core inflation.  

What is more important now is to determine, especially in the current immensity of administered, tax, tariff and other temporary factors (independent of the impact of monetary policy), what the current inflationary pressure is. As it happens, we have this calculated thanks to our super-base inflation. It constitutes about 35% of the consumer basket, including all categories after excluding: administered prices, the most volatile prices, food and energy prices, and 15% of the categories with the lowest price indices in a given month and 15% with the highest. Such a measure of inflation is a more stable indicator of internal inflationary pressure, becoming resistant in practice to all temporary factors at a given time. 

The conclusions from this approach are no longer so optimistic: inflationary pressure remains persistently elevated. In annualized terms, inflation has remained at around 3.5% since the beginning of 2024. What is more, it is in a slight upward trend now. The chart below shows the differences between core and super-core inflation: the wave of increases in regulated prices entering core inflation is passing and market prices are accelerating slightly. This mainly concerns services inflation and the very slowly translating high labour costs and the closing demand gap with the accelerating Polish economy in 2025. This will be a factor that the MPC will now pay special attention to when thinking about the prospects for interest rate cuts. For now, this is not a "dovish" picture... 

Core vs. super-core inflation (6-month moving average, seasonally adjusted, annualized) 

Source: Statistics Poland, NBP, Pekao Research   

CPI – goods vs. services (% yoy)  

Source: Statistics Poland, Pekao Research  

Financial market update

Let's take a step back: since mid-February, US treasury yields have dropped by 30-40 bps, the dollar has weakened by 3%, and major US stock indices have fallen by 6-8%. If we only saw these numbers, we would have concluded that something akin to an economic disaster occurred. However, we do not see the same situation in Polish markets. The beginning of the year was marked by significant strengthening of the zloty, which continued in February despite the growing tensions in global markets and increased risk aversion. Ultimately, it appears that at the end of February, EUR-PLN reached its bottom around 4.13 and since then has experienced a well-deserved correction (towards weaker zloty). During this time, Polish government bond yields moved without direction, which (at first glance) reflects the fate of Polish monetary policy at the time. Monetary policy is of course not the only factor affecting government bond valuations, especially at the long end. Consider the simple comparison to DM benchmarks: the yields of Polish 10-year bonds fell relative to their German counterparts but rose relative to their American counterparts. The net effect is no material change in yields, but a slight widening relative to swaps. In the FI market, we are therefore dealing with two phenomena: trading in suspension between two divergent (presumably temporarily) benchmarks and a solidifying belief in interest rate cuts in Poland. This last factor is somewhat surprisingly linked to the return of domestic data to the market's forefront (see the recent inflation prints). Today, with the publication of retail sales data, we may see the final act of this play. In the coming days, we expect global factors to once again dominate. The zloty, in our opinion, has formed a trading range (4.15-4.20 / EUR) and will remain there.