CPI vs. core inflation (% yoy)

Source: Statistics Poland, NBP, Pekao Research

According to the flash estimate, August CPI in Poland decreased to 2.8% yoy from 3.1% in July. Month-on-month, prices fell by 0.1%. This reading was slightly lower than market and our expectations (2.9%). This is primarily due to a significant decline in core inflation to about 3.1% yoy from 3.3% in the previous month, which is especially encouraging after the last two months of upward surprises in this category. However, these can now be viewed as unusual deviations in the downward trend in core inflation that has prevailed since the beginning of the year.

Core inflation momentum (%, annualized)

Source: Statistics Poland, NBP, Pekao Research

This positive inflation picture is marred only by food prices which may have fallen by 0.1% month-on-month in August, but still above the seasonal pattern. Food is one of the few categories that unfortunately has the potential to sustain inflation in the coming months. Supply-side factors have a significant impact here, including the bird flu epidemic, which is drastically reducing supply, driving up egg and poultry prices, and difficult global weather conditions (including droughts), which are driving up fruit prices. We expect food price growth to continue throughout 2025.

We are still awaiting the final conclusion of the matter related to the continued freeze on household energy prices in the fourth quarter. This is not a baseline scenario, but unfreezing energy prices would increase inflation by approximately 0.5 pp. At the beginning of the second half of the year, heating prices were also unfreezed, but the impact on inflation will be gradual, although there are some voices from the government administration suggesting a further freeze.

Looking further ahead, we expect Poland’s inflation to remain close to the inflation target for a longer period, remaining below 3% yoy by the end of 2025. It is safe to say that in Poland we are entering a low-inflation environment for a longer period. Furthermore, the assumptions for the draft state budget bill for 2026, published yesterday, do not indicate significant inflationary risks from fiscal policy. The deficit is planned to be reduced from PLN 290 bn to PLN 270 bn, which we interpret as a modest fiscal consolidation. This is important because the Monetary Policy Council (MPC) has emphasized the risk of expansionary fiscal policy on the inflation outlook at recent meetings.

In our opinion, these will be sufficient arguments for the MPC to cut interest rates by 25 bps at its next meeting in September. We will likely see a cut in the fourth quarter as well, with the reference rate falling to 4.50% by the end of the year.