Poland confirms unexpected decline in May inflation

What the desk is arguing

The desk interprets the recent inflation print as a signal for potential shifts in the NBP's monetary stance. The decline in inflation to 3.1% year-on-year, particularly attributed to food prices, indicates economic conditions are not as inflationary as previously feared. Per the full note, core inflation touched 3.0%, but the overall moderation could support a more accommodative policy environment.

Supporting evidence from the report highlights that food prices dropped due to excess supply, with significant yearly reductions in essential items such as cooking oil (-16.7%) and meat (-4.5%). This inflation backdrop, alongside stable energy prices, provides the NBP with room to consider easing measures in the near future.

This narrative effectively counters any prevailing sentiment that was predicting sustained inflationary pressures, primarily driven by energy prices. As these pressures remain subdued, market participants may need to recalibrate their expectations of NBP actions moving forward.

Where it sits in our coverage

Our consensus target for the PLN stands at 1.075, with a projected range of 1.04 to 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This analysis aligns with the general cross-firm consensus on a milder inflation outlook that suggests the PLN may strengthen as it remains at the upper bound of the expected range.

How other firms see it

Firms such as jpmorgan are aligned with the desk's interpretation, supporting a view of a softening approach from the NBP in light of the latest inflation data. Conversely, bofa holds a contrary stance, anticipating a more cautious outlook from policymakers regarding interest rates.

The trajectory of the EUR/PLN should be closely monitored, especially as it reflects broader sentiment on regional monetary policy shifts and inflation dynamics. The ongoing movements in core inflation will play a pivotal role in determining future central bank responses.

What the calendar says

With no significant events on the calendar in the next 30 days for this jurisdiction, focus will center on ongoing economic data releases and regional developments to gauge any change in market sentiment towards the PLN.