Poland’s preliminary consumer inflation reading for June came in at 2.5% year on year. On a monthly basis, consumer prices fell by 0.5%.
Both figures were better than market expectations. Analysts had forecast annual inflation of 2.7% and a monthly decline in prices of 0.2%.
This marks the second consecutive month in which inflation has surprised on the downside. It suggests that the impact of rising geopolitical tensions on consumer prices has so far remained clearly weaker than some market participants had feared.
The more favourable inflation data was also reflected in the bond market. Investors once again reduced their expectations for potential interest-rate hikes, while yields on Polish government bonds fell noticeably.
At the end of June, the yield on Poland’s 10-year government bonds stood at 5.24%. The yield curve moved lower across all maturities, signalling that the market is taking a more positive view of the outlook for Polish sovereign debt and assigning a lower probability to future interest-rate increases.
This market reaction is also consistent with recent comments from the Governor of the National Bank of Poland and members of the Monetary Policy Council. Growing evidence suggests that the most likely scenario for the coming quarters is the stabilisation of interest rates.
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