This article is a part of Poland Unpacked. Weekly intelligence for decision-makers
Interactive chart As it does annually, GUS revised the inflation basket to better reflect household consumption patterns. Changes from last year were modest. The largest increase was in the share of the “housing, water, electricity, and gas” category, rising from 19.53% to 20.35%. Spending on recreation, sports, and culture also saw a noticeable increase (from 5.89% to 6.37%), as did health expenditures (from 5.81% to 6.20%). Conversely, the share of transport expenses (from 11.07% to 10.18%) and spending on alcoholic beverages and tobacco products declined.
In February, the highest price growth was observed in alcoholic beverages and tobacco products (6.9% year-on-year) and educational services (6.1%). Significant increases were also recorded in health care, as well as restaurants and accommodation services. Meanwhile, prices fell in transport (-5.7%) and clothing and footwear (-3.4%).
Is the Polish economy back in the grip of an inflationary spiral?
February’s inflation data are already a rearview mirror – Poland now faces a sharp rise in energy prices driven by the conflict in the Middle East. Brent crude oil has traded recently between USD 90 and USD 100 per barrel, representing a 25–40% increase since the end of February. Meanwhile, natural gas prices on the TTF exchange in the Netherlands – the European benchmark – have surged by around 50%.
The oil price increase has coincided with a strengthening of the U.S. dollar, in which commodities are priced. Investors treat the dollar as a “safe haven” asset during periods of geopolitical tension. Since the beginning of February, the dollar has appreciated by more than 3.5% against the zloty.
These two factors – higher energy prices and a stronger dollar – will push energy costs up in Poland, creating a kind of spiral. Rising energy prices raise concerns about the health of economies dependent on energy imports. This often triggers capital outflows, which weaken the local currency against the dollar, making imported energy even more expensive.
Interactive chart A similar pattern was observed in 2022–2023, as illustrated in the chart. High energy costs, particularly for gas and coal, combined with a zloty-to-dollar exchange rate above 4.0, drove a sharp increase in spending on imported raw materials. In 2022, this accounted for 5.4% of GDP, compared with an average of 3% between 2015 and 2021. In 2023, raw material costs eased somewhat but remained high at 4.1% of GDP.
The current situation is different
Is Poland at risk of a similar shock today? No – because the circumstances differ from 2022–2023. Back then, the zloty’s weakening was a direct reaction to the conflict in Ukraine, which shares a border with Poland. This triggered significant capital outflows and a sharp depreciation of the currency. Today, the conflict is geographically distant, and the perceived geopolitical risk to Poland is unlikely to change materially. This makes a severe zloty weakening improbable.
Moreover, energy prices – particularly for gas – have been higher in recent months than before the outbreak of the war in Ukraine. Predicting the conflict’s trajectory is difficult, but the higher energy prices rise, the stronger Western pressure on Donald Trump to bring it to an end.
Rising energy costs will nonetheless feed through to inflation. For example, Pekao Bank economists estimate in their updated forecast that inflation could approach 3% in the coming months under the baseline scenario (assuming Brent crude at USD 70–80 per barrel and gas at EUR 50/MWh). Under a downside scenario (Brent at USD 120 per barrel, gas at EUR 90/MWh), inflation could reach 3.5% during the year, averaging around 3%.
This environment calls into question further interest rate cuts. It is reasonable to assume that the Monetary Policy Council (RPP) will refrain from cutting rates again this year.