Core inflation

When the flash reading was published, we wrote that acceleration in inflation in June, although slight, was somewhat of a surprise. Today, we know that the surprise accumulated in core inflation which likely increased slightly to 3.4% yoy from 3.3% in the previous month. Services inflation accelerated to 6.3% yoy in June, while goods inflation fell to 3.2%. However, this is not a cause for concern. At the same time, there was a one-off increase in the prices of individual services, which often can be quite surprising (airline tickets +15.3% month-on-month in June, telecommunications services +0.8%). Only these two categories increased core inflation in June by more than 0.1 percentage points.

CPI - goods vs. services (% yoy)

Source: Statistics Poland, Pekao Research

The momentum/impetus for core price growth has entered a clear downward trend since the beginning of 2025 and, on an annualized basis, already indicates a rate equal to the NBP inflation target. This is also significantly supported by the weakening wage pressure in the labour market.

Food

The prices of food and non-alcoholic beverages increased by 0.2% in June compared to the previous month, slightly above the seasonal pattern. Food is one of the few categories that unfortunately has the potential to support inflation in the near term. This is largely due to supply-side factors, including the bird flu epidemic, which is drastically reducing supply, significantly driving up the prices of eggs (they have already increased by 11.5% since the beginning of the year) and poultry (almost +15% since the beginning of the year). For similar reasons, the prices of chocolate (by 27%) and coffee (11%) have increased significantly since the beginning of the year.

Fuels

The escalation of the conflict between Israel and Iran temporarily boosted market prices of crude oil. This resulted in an increase in retail prices at gas stations only in the second half of June, which is why the StatOffice did not report an increase in fuel prices in its inflation data, but a decrease (by 1.3% mom). Fuel price hikes will be seen in the July inflation data (by about 3.5% mom), which will increase inflation by 0.2 percentage points.

Energy

Energy is the category that will be responsible for the sharp decline in CPI in July due to the high base effect from the previous year. In July of the previous year, the unfreezing of electricity and gas prices for households added 1.4 percentage points to inflation. Now, we will see a reversal of this effect in the annual price growth. Moreover, the new gas tariff for households introduced in July will further reduce inflation by another 0.2 percentage points.

Inflation outlook

However, the above is losing importance when we know that CPI will fall below 3% yoy as early as July and will remain at these levels at least until the end of the year. This, along with the evaporation of further inflationary threats (including government announcements to extend the freezing on electricity prices for households), will prompt the Monetary Policy Council (MPC) to further cut interest rates, by at least 25 bps as early as September. We will likely see further cuts in the fourth quarter, with the reference rate falling to 4.50% by the end of the year. Currently, the fiscal situation appears to be the most serious inflationary risk for the MPC. However, we will not learn the shape of the draft budget bill for 2026 until the end of August, i.e., before the September MPC meeting.

Inflation outlook (% yoy)

Source: Statistics Poland, NBP, Pekao Research