Inflation is accelerating again. Three factors possibly in play

This article is a part of Poland Unpacked. Weekly intelligence for decision-makers

What, then, drove the acceleration? Several factors were at play. The most important was high oil prices, which have fed through into fuel prices. These rose by 24.2% year on year in August.

It is worth remembering, however, that the CPN 2.0 program has been in force since August 17 and will run until August 31. It is a scaled-back version of the earlier Ceny Paliw Niżej, or “Lower Fuel Prices,” program. Under the scheme, the government introduced a reduced VAT rate of 8% on fuels and imposed price caps. This brought fuel prices down somewhat. The full effect may not yet be visible in the preliminary inflation figures, however, because Statistics Poland generally collects data for its flash estimate only until around the 22nd day of the month. The official figures may therefore include a slight downward revision to fuel prices.

Another factor behind higher inflation was the rise in gas and electricity prices, which increased by 4.1% year on year. Like higher oil prices, this is linked to the conflict in the Middle East. In August, the price of gas on the Dutch exchange, which serves as the benchmark for European prices, climbed to EUR 70 per MWh, its highest level since the end of 2022.

Food prices, by contrast, helped to curb inflation. They fell by 0.9% year on year in August, a much steeper decline than a month earlier. This was the positive surprise, driven mainly by lower prices for agricultural produce. For another month in a row, this exerted a fairly significant downward pull on inflation.

XYZ view

Several factors on the horizon could, unfortunately, push inflation higher in the coming months.

First, food-price deflation will fade. Second, oil and gas prices remain elevated, directly reflecting the blockade of the Strait of Hormuz. According to data from AXSMarine and the WTO, no LNG tanker passed through the strait in August, while oil-tanker traffic took place on only a handful of days. Third, the government does not plan to extend the CPN program beyond August.

In the coming months, inflation running clearly above 3% - and perhaps even above 4% - may become the new normal.