According to the flash estimate, Poland’s CPI inflation in October fell much more sharply than expected, declining to 3.5% yoy from 4.1% in the previous month. The consensus had pointed to a more modest decrease, to 3.7%. What makes this surprise particularly interesting is that it was entirely driven by core inflation (which measures price growth excluding food, fuel and energy).

CPI and core inflation (% yoy)

Source: Statistics Poland, NBP, Pekao Research

Non-core components broadly behaved as expected:

• Fuels: The reinstatement of the CPN fuel price relief programme brought pump prices down by 10%, subtracting around 0.7pp from headline CPI inflation. However, the declines were limited to petrol and diesel. LPG prices, which are not covered by the CPN programme, have been rising sharply in line with global benchmarks.
• Food: Food prices are coming to the end of their disinflationary contribution in annual terms and are slowly emerging from their trough, potentially becoming a major driver of inflation in 2027. Food prices grew in October, although the pace of increase remained moderate (+0.3% mom). Annual price growth is still negative, but the trend is clearly turning.
• Energy: Energy prices rose sharply again, for another month running. The increase was driven primarily by gas products, such as bottled gas, and other fuels including coal and pellet. These prices rose by 1.6% mom in October. Households remain protected by tariffs set by the Energy Regulatory Office (URE) for now, but we expect higher energy costs to feed through into higher household tariffs from the start of the new year. Both electricity and gas tariffs could increase by as much as 10%... unless the government decides to freeze these prices as well.
• Core inflation: The real surprise, however, lies here. We have not seen such a substantial downside surprise in a long time. Instead of accelerating to 3.3% yoy, core inflation fell markedly below 3%. The flash estimate does not yet provide enough detail to identify which categories were behind this outcome. We are therefore eagerly awaiting the final data, due in mid-November, which should shed light on the underlying price developments.

What drove the slowdown in CPI inflation in October?

Source: Statistics Poland, Pekao Research

It has to be said, however, that the much-anticipated second-round effects of higher fuel and energy prices remain almost invisible across the broader basket of core goods and services. We are left wondering what lies behind the Polish economy’s remarkable resilience, particularly as core inflation has been rising steadily in other major European economies. We therefore continue to expect higher energy costs to feed more visibly into the prices of other goods and services in Poland in the coming months.

The lower-than-expected October inflation reading has significantly reduced the likelihood of an interest rate hike at the MPC’s November meeting. However, we are not abandoning our call for rate hikes next year. According to our current forecasts, CPI inflation will remain above the upper bound of the NBP’s tolerance range around its inflation target for virtually the whole of next year. That is long enough for the MPC to conclude that the rise in inflation has become entrenched. We do not expect inflation to return to safer territory around the target before Q3 2027.

The MPC should see a similar inflation trajectory in the NBP’s November projection, assuming that the CPN programme expires at the beginning of 2027 and household energy tariffs increase. Of course, this entire scenario could change significantly if the conflict in the Middle East comes to an end, bringing down fuel prices and those of other energy commodities. For now, however, it is difficult to treat such an outcome as our baseline scenario.