According to preliminary data from the Central Statistical Office (GUS), inflation in Poland increased to 4.1% in June, up from 4.0% recorded in May. The Monetary Policy Council’s (RPP) decision on interest rates is expected this Wednesday. Despite the inflation rise, a strong decline in inflation from July onwards suggests another rate cut could be possible, but current signals indicate the Council is unlikely to make that move this time.
Inflation rose by 0.1 percentage points month-on-month as well, mainly due to rising food prices (up 4.9% year-on-year), despite falling energy and fuel prices. However, this is likely the last inflation increase this year, with price dynamics expected to slow significantly from July.
The July inflation drop will be supported by a base effect, as the high inflation reading from July 2024 — caused by a partial energy price unfreeze and a sharp price spike — drops out of the annual comparison. Additionally, from July, a 14.8% reduction in natural gas tariffs for households will take effect. The Sejm has also passed a law extending the freeze on electricity prices until the end of 2025. These measures should support disinflation and help inflation approach the 2.5% target (±1 percentage point) in the second half of the year.
The Strong Złoty Supports Falling Inflation
A further factor helping disinflation is the strong Polish złoty. Currency appreciation leads to lower prices for imported goods. The US dollar currently costs just 3.61 PLN, the lowest level since 2018. The euro remains lower than at the previous RPP meeting, at 4.23 PLN. The złoty’s strength is supported by Poland’s relatively high interest rates, while the European Central Bank, Bank of England, and Czech National Bank are lowering theirs.
Will the Monetary Policy Council Cut Rates Tomorrow?
The most likely scenario is that the RPP will keep interest rates unchanged, despite the rapidly falling inflation. The Council’s decision will be guided by the July inflation projection prepared by the National Bank of Poland.
The June inflation increase could justify maintaining rates at their current level. Although the situation in the Middle East has calmed and oil prices have begun to fall globally, the Council will still consider the risk of another price spike, which could significantly impact inflation in Poland. In recent months, the disinflation process was largely supported by falling oil prices.
The Council may also pay attention to the high budget deficit and risks from expansionary fiscal policy. Poland is currently subject to the European Union’s excessive deficit procedure.
Next Meeting and Outlook
The next RPP decision meeting is scheduled for after the summer holidays, on September 2–3. By then, inflation should be much lower, which may make it easier for the Council to decide on a rate cut.
Author: Paweł Majtkowski, Analyst at eToro Poland
Source: CEO.com.pl article
