Poland's inflation is returning to the market interest. Today, the StatOffice published the long-awaited readings of domestic CPI for January and February with included updated weights in the consumer basket. The basket revision is used to adjust its composition to the actual consumption structure of households. This year, the revision caused a lot of confusion. For this reason, the preliminary estimate for January published a month ago was revised down by as much as 0.4 percentage points to 4.9% yoy (in previous years, this impact was usually no greater than 0.2 pp). The changes in the new basket can be summed up as converging on a return to the pre-covid structure of consumption - with a greater share of services and a decrease in the shares of categories from non-core inflation (food, energy). Interestingly, the share of means of transport increased the most (by as much as 2 pp. to 3.4%).

Weight structure in the CPI consumer basket (%)

Source: Statistics Poland

Describing today's data, we will talk a bit about what happened in January as well as in February. In January, the solid hike in energy prices (by 1.5% mom) draws special attention, mainly due to the entry into force of new gas distribution rates which increased the average household bill by 5.5% and inflation by almost 0.15 pp. Due to the extension of electricity prices "freezing" and the suspension of the capacity fee, we will not see any major changes in energy prices until at least the end of the first half of the year.

What surprised us upwards in January were food prices which rose above the seasonal pattern by 1.6% mom for another month. This increase was mainly driven, as we expected, by prices of fruit (+3.7% mom) and vegetables (+4.5%). It is also worth noting the increase in prices of alcoholic beverages and tobacco products (by 1.4% mom in January and 1.3% mom in February), which is primarily the result of the entry into force of the new, higher excise tax rate on alcohol, but also of pre-emptive measures before the very large increase in excise tax on tobacco products starting from March.

Food prices (% mom, seasonally adjusted)

Source: Statistics Poland, Pekao Research

Moreover, CPI inflation in February stabilized at 4.9% yoy. Compared to the previous month, consumer prices increased by 0.3% mom on average. Food prices continued to have a pro-inflationary effect, increasing by another 0.2% in February. However, based on this data, we can announce that the rally in butter prices has ended (in February, butter prices fell by 1.8% mom). In turn, the situation on the egg market is still problematic (in the last 4 months, egg prices have increased by 10%). Here, the problems are also structural - a lower number of chicks and potential laying hens because of the consequences of bird flu. On the other hand, the downward trend in sugar prices has continued for many months. In the last 12 months, its price has fallen by almost 35%. Taking into account last year's poor domestic crop harvest, as well as the expected low supply this year due to difficult weather conditions (mainly by hydrological droughts), we expect food price dynamics to remain elevated throughout 2025.

CPI vs. core inflation (% yoy)

Source: Statistics Poland, NBP, Pekao Research

The persistently “sticky” and elevated core inflation is still a problem and amounted to around 4.0% yoy in February, remaining close to that level since the second half of 2024. It is particularly visible in the services sector due to the very slowly translating high labour costs and the closing demand gap with the accelerating Polish economy in 2025. The momentum of services inflation does not yet show any signs of easing inflationary pressure. In turn, stable prices of industrial or energy raw materials keep the inflationary pressure of goods low, especially those classified in core inflation ( excluding food, fuels and energy). Not much should change here in 2025 either.

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

Source: Statistics Poland, Pekao Research

The large impact of the revision of the consumer basket weights has caused all inflation paths, including the NBP path, to go down. This is of course a factor supporting the "dovish" stance to monetary policy and a possible faster start to interest rate cuts. This does not change the fact that we are entering 2025 with further hightened inflation, although we will see its peak in the current cycle soon, in March, slightly above 5.0% yoy. In turn, at the beginning of the second half of the year, due to base effects, we will see a downward dip below 3.5% yoy. At the end of 2025, inflation will be in the range of 3.0-3.5%. However, core inflation will not want to fall quickly throughout 2025. What is more, 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 state regulator (URE) should no longer differ significantly from the current frozen prices (PLN 500/MWh for electricity, PLN 239/MWh for gas). A government extension of the price "freezing" is also possible.

Pekao Research CPI forecast (% yoy)

Source: Statistics Poland, NBP, Pekao Research