Polish CPI grew 13% y/y in May (chart), the lowest reading since last June, data from Poland’s statistical office GUS showed on June 15.

The reading, which came in line with the flash estimate published by GUS in late May, showed the inflation eased 1.7pp in comparison to April. While the CPI index remains elevated very clearly above the National Bank of Poland’s target of 1.5%-3.5%, its strong deceleration improves the odds of inflation falling to single digits before the end of the year.  

The index’s decrease since the February peak growth of 18.4% y/y has been primarily due to the high reference base from last year and falling prices in the energy sector, analysts say.

Seasonal effects and one-off adjustments to price lists in some categories, such as in transport services, also played a role

“On the other hand, the disinflation process is weakened by low unemployment, as well as an increase in real wage growth expected in the coming months,” Grzegorz Maliszewski, an economist with Bank Millennium, said in a comment. 

“Combined with an expansionary fiscal policy, that will support consumer demand. In conditions like those, companies will still have room to pass on rising costs to retail prices, although with less intensity,” the analyst added.

A disruptive factor could be drought, which could affect crops and reverse growth dynamics in the food segment if forecasts for the above-average temperatures during summer months prove on target, Santander Bank Polska notes. The destruction of the Nova Kakhova dam in Ukraine could also hit imports of Ukrainian food, driving prices up on the Polish market, the bank's analysts add.

The May CPI reading also suggests a further slowdown in the core inflation growth rate, which, analysts say, eased to 11.4%-11.5% from 12.2% y/y in April.

The May inflation reading will not change much in the monetary policy of the National Bank of Poland (NBP). 

With the CPI at around 9%-10% y/y at the end of the year, the NBP is expected to keep its reference interest rate on hold at 6.75% for now. Only a much deeper fall in price growth – which models currently do not suggest – could revise the NBP’s position.

"We believe that these circumstances will not be conducive to interest rate cuts, especially amidst the expected economic recovery and the growing scale of pro-inflationary election promises," Santander Bank Polska said.

Prices in the most-weighted food and non-alcoholic drinks segment drove the easing of the index in May. While expanding a considerable 18.7% y/y in May, food price growth still eased in the fifth month after a gain of 19.7% y/y in April, the breakdown of GUS data showed. 

Price growth also eased in the second most-weighted segment of housing and energy, growing 16.1% y/y in May after an increase of 18.2% y/y in April. 

Transport prices fell 3.2% y/y in the fifth month after growing 4.6% y/y in April, GUS data also showed.

In m/m terms, the CPI did not change in May, following a gain of 0.7% y/y in April.

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