The CPI inflation in October (flash estimate) fell slightly to 2.8% y/y compared to the previous month (2.9% y/y). Pekao macroeconomic team, in line with the market consensus, had expected price growth to stabilise at last month's level. On a month-on-month basis, consumer prices rose by 0.1% m/m.

CPI and core inflation

Source: Macrobond, Statistics Poland, National Bank of Poland, Pekao Research

Last month, food prices were responsible for the surprisingly low inflation reading. We correctly attributed this to higher volatility in the months when new seasonal fruit and vegetables appear on the market. In September, this was mainly due to apples, whose prices fell by 15% in one month, according to the Statistics Poland (GUS). In October, prices of food and non-alcoholic beverages remained at the previous month's level (0% m/m), which is again lower than suggested by the seasonal pattern. In October, the situation from the previous month (price volatility of fruit and vegetables) could have repeated, but we have to wait for the publication of the final, detailed reading (in mid-November) until this hypothesis may be verified. Compared to last year, food prices were 3.4% higher.

In turn, electricity, gas, and other fuel prices rose by 0.6% m/m in October. We believe this is a consequence of a series of heating services price increases triggered mid-year by regulatory unfreezing of those prices. Further increases in this category are to be expected until the end of the year. The extension of the electricity price freezing for households in Q4 2025 averted the threat of inflation being driven up by energy prices. Fuel prices have also remained stable in recent months, rising by only 1% in October and falling by 1.8% over 12 months.

Since food and energy prices were in line with expectations, why was there a surprise of 0.1 percentage points relative to year-on-year inflation forecasts? We see the source of the surprise in core inflation, which, according to our calculations, slowed from 3.2% y/y in September to approx. 2.9% y/y in October. On the one hand, this is a much stronger decline than expected, and on the other, a return to 2019 levels. The last time we had seen core inflation in the ‘double digits’ was before the outbreak of the COVID pandemic, in November 2019. Today's reading may suggest that wage pressure is easing faster than previously expected. This is a positive sign for service prices, as labour costs account for a high percentage of total operating costs in the service sector.

In summary, the inflation outlook in Poland remains stable. There are no major threats on the horizon that could push inflation beyond the upper range of acceptable deviations from the inflation target. In the coming months, inflation will remain within a narrow range of 2.5-3.0% y/y. Due to the higher base effect from last year, a slight downward movement is possible in November, but we will end 2025 with inflation only just slightly below 3.0%.

The most interesting issue hidden in today's reading is its impact on next week's MPC decision. On the one hand, the reading should not change much – in our opinion, the Council would lower rates even if October inflation had been 0.1 percentage points above today's figure, as expected. On the other hand, however, significantly lower core inflation essentially eliminates all risk regarding the MPC's November decision. In the current situation, and in light of several statements by the MPC members, a November cut seems certain, regardless of the specific shape of the NBP's macroeconomic forecasts. In the broader perspective, today's reading is in line with our scenario of a rate cut as early as November, with monetary easing continuing from the beginning of 2026 and a target rate of 3.50%.