This article is a part of Poland Unpacked. Weekly intelligence for decision-makers
This time, however, the surprise was somewhat smaller than in the previous month. Back then, the data proved better even in terms of direction: analysts had expected inflation to rise, whereas Statistics Poland reported a slight decline. June’s reading also came in below market expectations. Compared with May, prices fell by 0.5%.
Interactive chart Fuel and food
Two main factors contributed to the outcome. First, fuel price growth slowed markedly. In May, fuel prices rose by 12.3% year on year, while in June the increase was only 5.3%.
Interactive chart The most significant change, however, came from food and non-alcoholic beverages. According to Statistics Poland’s flash estimate, prices in this category fell by 0.3% year on year. At the beginning of the year, food price growth ranged between 1.9% and 2.4% year on year, while in May it stood at 0.5%.
Given the large weight of food and non-alcoholic beverages in the consumer basket, this category was key to the positive surprise. Compared with May, prices in this segment fell by 0.7% in June.
XYZ’s outlook
What does this surprise mean for monetary policy? Above all, it reduces pressure on the Monetary Policy Council (RPP) to tighten its stance. Inflation in Poland has landed exactly at the midpoint of the National Bank of Poland’s 2.5% target.
Oil futures have already moved close to levels seen before the US invasion of Iran. At the same time, data do not suggest that higher fuel prices are significantly spilling over into other sectors of the economy.
Wage dynamics also remain moderate. In May, corporate sector wages rose by 5.6% year on year in nominal terms, down from 6.6% in March. Easing wage pressure is another factor that should encourage RPP members to maintain the current monetary policy stance.
However, a swift easing cycle should not be expected. First, the fate of a final agreement between the United States and Iran remains uncertain. The government has also announced the expiry of the “Lower Fuel Prices” program (CPN) at the end of June, which had previously softened the impact of fuel price shocks. Nor is it clear how durable the deflation in food prices will prove to be.
As a result, the National Bank of Poland is likely to remain in a “wait-and-see” mode, awaiting further incoming economic data.