A high five to Poland inflation rate

The flash estimate of Poland’s CPI brought its slight increase in October to 5.0% yoy from 4.9% in the previous month. Compared to the previous month, consumer prices rose by 0.3%. The reading was in line with market expectations. This slight acceleration in yearly inflation was supported by the effect of low reference base from last year on fuel prices. For the same reason, but in the opposite direction, in November we can expect a drop in inflation closer to 4.5% yoy. In turn, core inflation decreased slightly to around 4.1-4.2% yoy from 4.3% in September. Inflation trends from recent months have been maintained.

CPI vs. core inflation (%yoy)

Source: Statistics Poland, NBP, Pekao Research

Food and non-alcoholic beverage prices rose by 0.7% mom in October, another month stronger than the seasonal pattern. 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 transition to imported fruit and vegetables, this problem should gradually disappear, although the risk is unfavourable weather conditions in food exporters (e.g. see the current heavy downpours in southern Spain). 

In turn, according to the StatOffice, retail fuel prices fell by 2.2% mom in October, surprisingly given the partial data collected from petrol stations, based on which we have assumed a smaller decrease. Retail fuel prices have fluctuated quite a lot in recent weeks due to the situation on the Arabian Peninsula. At the beginning of October, we had its minimum (diesel prices then fell even below PLN 6 per litre). Then the market got scared of the escalation of the conflict and market prices of crude oil went up significantly, then retail fuel prices behaved similarly. However, these fears were exaggerated when it turned out that Israel's attacks would not cover Iran's critical refinery infrastructure, and oil prices began to fall again. In addition, there is the issue of easing oil production cuts by OPEC+ and predictions of oversupply on the market. For these reasons, inflationary pressure from fuel prices should decline in the coming months.

In turn, based on today's data, we estimate that core inflation fell slightly in October to 4.1-4.2% yoy. It remains stubbornly high (especially in the services sector due to persistently high labour costs and growing services consumption). Its momentum has reached a dangerously high "plateau". In our opinion, it should be expected to increase gradually (among others due to the closing demand gap), but this will not be a dynamic process. This will be an increasingly difficult feature for the MPC and the prospects for interest rate cuts. The market consensus currently assumes the start of cutting cycle in Q2 2025, although the macroeconomic situation will not help in such a decision.

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

Source: Statistics Poland, NBP, Pekao Research

To sum up, consumer inflation will remain close to 5% yoy until the end of the year, although it will decrease slightly in November, due to the effect of a high reference base. However, we will end 2024 with inflation close to 5% yoy. At the beginning of 2025, we assume another acceleration of inflation (to almost 6% in the first quarter), among others due to further defreezing of energy prices and the once again low reference base. 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.