Instead of a peak, we have a plateau - CPI in Poland surprised to the downside again
The peak of Poland's CPI inflation was supposed to be in March, but it has flattened out... According to the flash estimate, CPI in Poland remained at the level of the previous two months, i.e. 4.9% yoy in March, forming a solid plateau. Compared to the previous month, prices increased by 0.1% mom. The March result once again surprised analysts with a lower reading (expectations of 5.0-5.1% yoy), which only strengthens the belief that inflationary pressure is weakening.
The March surprise is mainly the result of lower than expected core inflation, especially considering the entry into force of a very large hike in excise duty on tobacco products. According to today's data, we estimate that core inflation (the most frequently referred to, i.e. excluding food and energy prices) decreased in March to around 3.5% yoy. We will learn more about its structure and specific sources of the surprise in two weeks when the final reading is published.
CPI vs. core inflation (% yoy)
Source: Statistics Poland, Pekao Research
Food prices also surprised with lower than expected price growth, rising by 0.3% mom compared to the previous month, slightly above the seasonal pattern. However, with continuing structural problems (including in the eggs market) or taking into account last year's poor domestic crop harvests and the expected low supply this year related to difficult weather conditions (mainly hydrological droughts), we expect that growth of food prices will continue to be elevated throughout 2025.
Food prices (% mom, seasonally adjusted)
Source: Statistics Poland, Pekao Research
Lower inflation was also supported by fuel prices, which fell by 2.0% compared to the previous month. In turn, 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.
Since September 2024, inflation has been around 5%, forming a solid plateau, but the coming months will bring a strong drop in inflation, supported by the high base effect from last year. Inflation will fall below 4.5% yoy already in April. In turn, at the beginning of the second half of the year, due to further base effects, we will see a downward dip to almost 3.0% yoy. At the end of 2025, inflation may even fall below this level. However, core inflation will not want to fall so quickly throughout the year, with slowly translating high labour costs and the closing demand gap. Moreover, we do not expect a spike in inflation in 4Q25 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.
The lower than expected (also compared to the latest NBP projection) inflation reading in March is of course another "dovish" factor for monetary policy. We remain of the opinion that in 3Q25 the MPC will decide to start a cycle of interest rate cuts - by a total of 100 bps by the end of 2025 (to 4.75%) and another 125 bps in 2026 (to 3.50%).
This publication (hereinafter referred to as the ‘Publication’) prepared by the Macroeconomic Analysis Department of Bank Polska Kasa Opieki Spółka Akcyjna (hereinafter referred to as ‘Pekao S.A.’) constitutes a commercial publication and is for information purposes only. Nothing contained herein shall form the basis of any contract or commitment whatsoever, in particular it shall not constitute an offer within the meaning of Article 66 of the Civil Code. The publication does not constitute a recommendation provided within the framework of investment advisory services, investment analysis, financial analysis or any other recommendation of a general nature concerning transactions in financial instruments, an investment recommendation within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse or investment advice of a general nature concerning investment in financial instruments, and the information contained therein cannot be regarded as a proposal to purchase any financial instruments, an investment or tax advisory service or as a form of providing legal assistance. The publication has not been prepared in accordance with legal requirements ensuring the independence of investment research and is not subject to any prohibitions on the dissemination of investment research and does not constitute investment research.