Poland confirms unexpected decline in May inflation
Lead — The unexpected decline in Poland's inflation to 3.1% year-on-year for May suggests a dovish tilt for the National Bank of Poland (NBP) moving forward. Per the full note, this decrease is largely attributed to oversupply in food categories mitigating energy price pressures. Current dynamics indicate that while core inflation nudged up slightly, it remains below market expectations, positioning the PLN favorably against the backdrop of anticipated monetary policy adjustments from the NBP.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Poland's inflation unexpectedly declined to 3.1% YoY in May, signaling a potentially dovish NBP stance.
- 02Core inflation increased slightly, but overall readings fell below expectations, suggesting easing pressures.
- 03Oversupply in many food categories is driving down prices, contrasting with stable energy costs.
- 04The PLN may see strengthening if dovish signals from the NBP materialize based on current inflation trends.
Market implications
Market participants should monitor the EUR/PLN exchange rate for movements that reflect changing sentiment around the NBP's policy outlook. A steady inflation trajectory could lead to strategic adjustments in positions ahead of any future monetary easing announcements.
Risks to this view
A sharp increase in food prices due to adverse weather conditions or rising fertilizer costs could reverse current easing trends in the inflation outlook. Additionally, any surprising uptick in energy prices may prompt the NBP to reconsider their current stance.
Articles Poland confirms unexpected decline in May inflation 14:29 Poland Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Excess supply across many food categories has outweighed the energy shock. Core inflation edged up, but came in below expectations; for now, the energy shock is having only a limited impact on prices. Inflation rose in expected categories such as air fares and tourism, while prices of other goods are falling due to demand constraints and imports from China Rafal Benecki and Michal Rubaszek Food prices are currently being held down by high inventories, but weather conditions and rising fertiliser prices may lead to growth in the coming quarters Excess of supply across many food categories outweighed the energy shock Statistics Poland has confirmed the preliminary estimate of May's inflation reading at 3.1% year-on-year and 0.6% month-on-month.
The slight decline in annual inflation relative to April (3.2% YoY) was driven mainly by food and non-alcoholic beverage prices, whose monthly dynamics were surprisingly low by historical standards for May (0.5% YoY and -1.0% MoM). In annual terms, prices fell for cooking oil and related fats (-16.7% YoY), meat (-4.5%), cereal (-3.0%) and vegetables (-2.2%), while dairy price growth remained relatively subdued (0.6%). Against this backdrop, fruit prices stood out with a strong annual growth of 5.0%.
While food prices are currently being held down by high inventories, weather conditions and rising prices of fertilisers may lead to faster food price growth in the coming quarters. Energy carrier prices were unchanged relative to April, although their annual growth rate was at 4.9% – slightly below the preliminary figure reported two weeks ago (5.0% YoY). Statistics Poland also confirmed the estimates for fuel price growth (12.3% YoY and -0.1% MoM).
Polish government to withdraw from the Lower Fuel Prices programme Today’s data indicates that core inflation rose from 3.0% in April to 3.1% in May. The energy shock is feeding through into core goods and services, but its impact remains limited. Inflation increased for air fares (to 10.2% YoY), as well as for foreign travel (8.9%) and domestic accommodation (3.8%).
At the same time, prices of many goods are falling, from clothing to numerous other items, such as the recreation and culture category and household equipment. In our view, demand constraints are at play: the large price increases of previous years pushed prices to such high levels that they are now meeting resistance from sluggish real income growth. The disinflationary impact of imports from China is also still visible.
The increase in consumer inflation following the outbreak of war in Iran was slowed by the introduction of the Lower Fuel Prices (CPN) package. European Commission data shows that fuel prices in Poland were significantly below those in other EU countries; on 11 June, the price per litre in Poland was €1.40 for petrol (E95) and €1.49 for diesel, compared with EU averages of €1.82 and €1.83, respectively. Weekend reports suggest that the CPN package will be withdrawn in two stages: fuel excise duty will be raised from 16 June, and the 23% VAT rate will be reinstated from 1 July.
The impact of these changes on CPI inflation will be somewhat counterbalanced by declines in crude oil prices on international markets (today, Brent crude is trading at around US$83/bbl), and this is already reflected in our forecasts. These forecasts indicate that CPI inflation in the coming months will remain slightly above 3% YoY, and therefore still within the permissible deviation from the National Bank of Poland's target. We expect interest rates to stay on hold in 2026 Financial markets are still pricing in a rate hike in Poland, but the Monetary Policy Council is increasingly signalling that it sees the war as a supply-side shock that should be looked through.
That is also our view. We assume interest rates will remain unchanged until the end of this year. The near-agreement between the US and Iran announced over the weekend does not materially change our inflation forecasts, as we believe that the reopening of the Strait of Hormuz would lead only to a limited fall in oil prices, which we had already assumed.
The reasons for the muted oil price response to an agreement are widely acknowledged: a) the fragility of the peace, b) uncertainty over the pace at which commodity transport can be restored, c) the time needed to repair war damage to infrastructure, and d) the need to rebuild inventories. Global oil inventories for May and June are not yet available, but figures up to April suggested that by July, global reserves would be low enough that many countries would decide to rebuild stocks rapidly, implying a surge in demand that would prevent a fall in crude prices. Monetary Policy Inflation Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Rafal Benecki Chief Economist, Poland Rafal Benecki is a Chief Economist at ING in Poland, joining in 2005. Prior to this, he was the head of the Economic Analysis Bureau at Millennium Bank in Warsaw.
He has an MSc in Financial… Michal Rubaszek Senior Economist, Poland Michal Rubaszek is a Senior Economist at ING Poland, joining in 2022. He is also a professor of economics at SGH Warsaw School of Economics and the author of numerous academic articles on… In this article Excess of supply across many food categories outweighed the energy shock Polish government to withdraw from the Lower Fuel Prices programme We expect interest rates to stay on hold in 2026
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