Inflation rises on higher fuel prices, further narrowing room for rate cuts
Poland’s CPI inflation accelerated markedly in August to 3.4% yoy, but once again primarily driven by higher fuel prices, while food prices continued to decline. The rise in core inflation is nevertheless a concern. Today’s data further narrow the window for interest rate cuts.
Poland’s CPI inflation accelerated to 3.4% yoy in August from 3.0% in the previous month. Once again, the increase was mainly driven by fuel prices, which rose by more than 5% mom.
CPI inflation vs. core inflation (% yoy)
Source: Statistics Poland, National Bank of Poland, Pekao Research
As expected, the Central Statistical Office in the August data did not capture the effect of the government’s fuel anti-inflation programme (in Polish the CPN programme), as it was reinstated unusually for the final two weeks of August - after the price collection period had already ended. This should also reduce noise in the September inflation data, when the CPN programme will no longer be in place.
On the positive side, food prices continued to decline, both month-on-month (-0.7%) and year-on-year (-0.9%). On the less positive side, we are probably already close to the bottom in this category. Food inflation is likely to rebound, partly due to supply-side pressures - including severe drought in Western Europe following the harvest - as well as the pass-through of higher oil prices into agricultural production costs.
Core inflation is also a concern, rising to around 3.2-3.3% yoy in August. We will have to wait for the final release for more details, but fuel-sensitive categories such as transport and package holidays are likely to remain an important factor. Excluding the impact of fuel prices, inflation remains broadly stable.
CPI inflation excluding fuel prices (% yoy)
Source: Statistics Poland, Pekao Research
The conflict in the Persian Gulf is dragging on, while oil prices remain elevated. As a result, the scenario we presented in May should once again be treated as our baseline. Under this scenario, CPI inflation still has room to accelerate and could approach as much as 4% yoy towards the end of the year, reaching a local peak at that point. We expect average inflation to come in at around 3.1% in 2026. In 2027, we expect inflation to decline, although the path will be uneven due to volatile base effects.
Today’s data further narrow the window for interest rate cuts — both in September, as advocated by the NBP Governor Glapiński at the July post-meeting press conference, and through the end of 2026. In our view, interest rates will remain at the current level of 3.75% through year-end. If geopolitical tensions ease, room for interest rate cuts could emerge no earlier than in the second half of 2027.
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