Polish CPI inflation fell to 3.1% year-on-year in July from 4.1% YoY in June, according to the final data, confirming the preliminary (flash) estimate. Goods prices rose by 1.9% YoY last month, while services prices increased by 6.2% YoY, compared to 3.2% and 6.3% respectively in June. There was a marked increase in the cost of foreign travel services (up 11.2% month-on-month) and TV and radio licence fees (up 3.8% MoM). Service price inflation remains persistently high, which corresponds with the slow deceleration in wage growth observed this year.
The decline in the annual inflation rate compared to June was mainly driven by a sharp slowdown in energy price inflation, which fell to 2.4% YoY from 12.8% YoY in June. This contributed to a reduction in annual inflation of approximately 1.2 percentage points from June. The drop was due to a base effect linked to the partial lifting of energy price freezes from July 2024. Fuel prices were working in the opposite direction; their decline eased in July to 6.8% YoY from 10.0% in June. We estimate that core inflation, excluding food and energy prices, remained at a similar level to June, when it stood at 3.4% YoY.
While inflation did not fall below 3% YoY in July, as the market had expected, it still declined significantly and is now within the range of acceptable deviations from the National Bank of Poland’s (NBP) target. The inflation outlook for the coming months remains favourable, and assuming continued stability in energy prices, inflation should hover close to the NBP’s target of 2.5%. We therefore expect the Monetary Policy Council to cut interest rates by 25bp at its next meeting. We also anticipate similar decisions in October and November.
