The rise in prices has accelerated in recent months. This is the result of higher energy and service prices. Although November and December may bring a slowdown in growth, around a 5% level is likely to prevail for the first half of 2025. According to Dr. Jakub Rybacki from PIE, inflation may fall to around 3.5% only in the second half. This could imply that the first reduction in interest rates might not occur at the beginning of the year.
In October, the rate of increase in the prices of goods and services was, in line with economists’ consensus, 5% year on year. This is the most this year, and 2.5 times faster than in March, when it was the lowest in five years. However, VAT on food was reintroduced in April as part of the abolition of anti-inflation shields, which slowly translated into a price increase over the following months. In addition, from July, energy prices began to rise partially.
“- We expect October’s inflation to be close to 5%. On one hand, we still feel the effects of raising energy bills – energy carrier prices are rising at a rate exceeding 10% and this will stay with us for coming months,” says Dr Jakub Rybacki, head of the Macroeconomics Team at the Polish Economic Institute. “- Also, core inflation, i.e., industrial product and service prices, is high. Services in particular play a large role, as their prices are rising at a nearly 7% rate. This rate is stable, given that we continue to have a significant increase in wages. This drives labor costs and causes inflation in services.”
In September, goods were 4.2% more expensive than a year earlier, and services by 6.8%. On average, one had to pay 4.7% more for foodstuffs, while energy carrier prices rose by 11.4%, most notably in the case of electricity (21.2%).
“- Ideally, in November and December, inflation will fall, and we’re likely to end the year around 4.5%. From the beginning of next year, we will likely see a further rise associated with further increases in energy bills. These results will still fluctuate around 4.5-5%, possibly even exceeding 5%, and the first half of the year could be very stable in this regard,” the economist predicts. “- Energy and service prices will continue to be the key factors. We’re also likely to see an increase in the prices of industrial goods, which is partly a result of rising energy and labor costs.”
According to the forecast by the Polish Economic Institute, inflation is likely to fall within the acceptable band deviations from the inflation target in August. This target is 2.5%, and its deviation by 1 percentage point upwards or downwards is allowed. As effects of the significant energy bill increase will fade by the end of the summer holidays, inflation is likely to range between 2.5 and 3.5%, possibly with a temporary upward swing in the fourth quarter.
Compared to other EU countries, harmonized inflation in Poland remains high. In June, our country was 10th in this regard, considerably closer to the middle of the EU rate rather than its forefront. However, in July, it moved to fourth, and in August and September, it regained its podium position with twice the rate of the 27-country average. In September, inflation averaged 2.1% in the EU and 1.7% in the euro zone.
“- In the Eurozone, inflation is currently fluctuating around the European Central Bank’s target of 2%. However, it should be noted that this is at the expense of a very deep economic slowdown. The economy in Germany is essentially stagnating, in a recession, causing demand to fall and product prices to drop,” explains Dr Jakub Rybacki. “- Whereas in the case of faster-growing countries, such as Spain, inflation is higher, but the levels are about 3%, so the difference is dramatically smaller.”
Economic growth in the EU in the third quarter reached 0.9% year on year according to preliminary data. In Spain, GDP grew by 3.4%, which was the best result (seasonally adjusted data), whilst in the largest economy, Germany, it fell by 0.2%.
This could prompt the European Central Bank to further reduce interest rates. These have already been cut three times this year, and there are increasing suggestions that the next meeting could even result in a cut of 50 basis points, a move made by the American Fed in September. In this case, the Monetary Policy Council may come under pressure.
“- The Monetary Policy Council communicates its readiness to await interest rate cuts until we see a lasting decrease in inflation. The next few months will likely see a stabilization in interest rates, but discussions about cuts will begin early next year,” says the head of the Macroeconomics Team at PIE.
Chairman of the MPC, Prof. Adam Glapiński, who previously ruled out the possibility of a cut before 2026, changed his narrative and made decisions conditional on the March inflation projection.
“- If the rates in Poland are higher than in the major economies, than in the Eurozone, then we will see a strengthening of the zloty, which may not necessarily be beneficial to the economy. As for the decision in Poland on the cut, it is more likely to happen in the middle of the year than at the beginning of March, although everything depends on how the global situation develops. The state of the global economy is certainly a hot topic. How fast GDP grows in Poland will also somewhat imply how long we will have increased inflation,” says Dr Jakub Rybacki.
