Polish headline inflation slowed sharply in July, falling to 3.1% year-on-year from 4.1% in June, according to final figures from Statistics Poland (GUS). The decline, in line with preliminary estimates, brings inflation firmly within the National Bank of Poland's (NBP) target range of 2.5% ± 1 percentage point, creating scope for further monetary easing.
© Sjankauskas | Dreamstime
The drop was primarily driven by a sharp deceleration in energy price inflation, which fell to 2.4% YoY in July from 12.8% YoY in June. This shift alone reduced annual inflation by approximately 1.2 percentage points. The change reflects base effects following the partial lifting of energy price freezes in July 2024.
While the market had anticipated inflation dipping below 3%, the outcome still represents a marked improvement. 'Polish inflation may not have fallen below 3% YoY, as the market had expected, but we still saw a significant drop in July,' noted ING's Senior Economist for Poland, Adam Antoniak.
Goods prices rose 1.9% YoY, compared to 3.2% in June, while services prices increased 6.2% YoY, slightly down from 6.3% the previous month. Price pressures were most notable in foreign travel services (up 11.2% month-on-month) and TV and radio licence fees (up 3.8% MoM). Service inflation remains elevated, mirroring the gradual slowdown in wage growth seen this year.
Fuel prices, while still declining, did so at a slower pace – down 6.8% YoY in July compared to a 10.0% fall in June. Core inflation, excluding food and energy, is estimated to have remained broadly stable from June's 3.4% YoY.
With inflation now inside the NBP's tolerance band, the central bank is positioned to advance its rate-cutting cycle. ING expects the Monetary Policy Council to cut interest rates by 25 basis points at its next meeting, followed by similar moves in October and November.
'The inflation outlook for the coming months remains favourable, and assuming continued stability in energy prices, inflation should hover close to the NBP's target of 2.5%,' Antoniak said.
The easing of price pressures is a significant turnaround from mid-2024, when the partial unfreezing of energy tariffs drove a spike in inflation. With that effect now dissipating, policymakers face a more predictable price environment, giving them room to support growth through lower borrowing costs.
The developments are being closely watched by European markets, given Poland's position as one of the EU's largest economies outside the eurozone. Sustained moderation in Polish inflation could reinforce regional disinflation trends, influencing sentiment towards central bank policy across Central and Eastern Europe.
More information:
ING
www.think.ing.com
