Inflation in Poland has finally slowed. In July, it fell to 3.1% year-on-year, down from 4.1% in June—marking the lowest level in many months. While the sharp drop might seem surprising, it was largely anticipated by analysts. In response, the Monetary Policy Council (RPP) already lowered interest rates at the beginning of July. Now, markets are betting on another cut, possibly as soon as September.
Crucially, inflation has returned to the broader target range of the National Bank of Poland (NBP)—2.5% with a ±1 percentage point tolerance. This is the first time in a long while that inflation has fit within that band.
On a monthly basis, prices rose by 0.3%, indicating reduced price pressure during the summer period. However, despite the overall decline in inflation, food prices continue to rise—up 4.9% year-on-year. At the same time, falling fuel prices continue to support disinflation, with a 6.8% YoY drop in July. Energy carrier prices increased moderately by 2.4%. As of July, a 14.8% reduction in natural gas tariffs for households also contributed to lowering the inflation rate. The year-on-year drop also benefits from a base effect, as July 2024—when partial unfreezing of energy prices caused a sharp spike—has now fallen out of the annual comparison.
Inflation is expected to continue declining in the coming months, although the pace will likely be less dramatic than in July. A key factor in this trajectory is the continued freeze on electricity prices through the end of the year. These provisions are part of the so-called “Wind Turbine Act,” which was recently passed by the Senate with amendments. The Sejm (lower house) must now consider them. However, delays could occur if the President vetoes the bill. Ultimately, the act’s implementation should support the disinflationary process and help bring inflation below 2.5% in the second half of the year.
The sharp July drop was anticipated and had already been factored into RPP’s strategy. This was one reason the Council enacted its second rate cut of the year in July. Since May, the total reduction amounts to 75 basis points. The current environment creates room for further cuts. It appears likely that during the next meeting on September 2–3, the Council could opt for another 25 basis point reduction.
Falling inflation is welcome news for bank deposit holders. With July’s inflation at 3.1%, the real return on one-year deposits opened in August 2024—with the average market interest rate—was 1.05% before tax. After applying the so-called “Belka tax,” that leaves about 0.28% in real gains. This means that, for the first time since autumn 2023, bank deposits are once again effectively protecting savings against inflation.
It’s worth noting that, according to the eToro Individual Investor Pulse survey, inflation remains the top concern for Polish investors—24% of respondents consider it the greatest threat to their assets. At the same time, portfolio analysis shows that Polish investors are noticeably more sensitive to local interest rate changes than the average global investor.
Author: Paweł Majtkowski, Analyst at eToro Poland
Source: CEO.com.pl
