Core inflation rises to 3%. Rising fuel prices drive service costs
The National Bank of Poland published yesterday calculations of core inflation measures for April. Of the four indicators presented, three increased year‑over‑year, while one remained unchanged.
The most frequently analyzed core inflation indicator, i.e., CPI excluding food and energy prices, rose to 3.0% y/y from 2.7% y/y in March, and month‑over‑month to 0.9% from 0.5%, marking the highest monthly momentum in three years. This increase was mainly driven by service prices, especially airline ticket prices, which rose 62% m/m in April. This was a consequence of fuel price hikes stemming from the Middle East conflict and the near‑complete blockade of oil transit through the Strait of Hormuz.
Currently, in our view, consumer price increases are concentrated in categories most strongly and directly linked to fuel prices. However, we believe that the effect of higher costs will gradually and more broadly permeate the economy, raising core inflation. According to our expectations, assuming stable energy commodity prices, core inflation should oscillate around 3.5% y/y in the coming months, i.e., the upper bound of acceptable deviations from the inflation target.
This means further intensification of inflationary pressure, as we expect the energy shock to continue gradually permeating commodity and service prices. By 2027, this effect should gradually fade, creating conditions for inflation to return to the target. Under this scenario, the Monetary Policy Council, in our view, will keep interest rates at a stable level.
Oil at $110, new Fed chief ready for oath
Monday's session in the U.S. brought minor index changes amid continued weakening of the tech sector and declines in the S&P 500 and Nasdaq Composite. The focus remains on the Middle East situation. President D. Trump announced that on Friday he will take the oath of the new Fed chief K. Warsh, after his confirmation by the Senate last week. President of the United States D.
Trump also announced on Monday that, at the request of Saudi Arabia, Qatar, and the United Arab Emirates, he has postponed the planned Tuesday attack on Iran, which could still be implemented if no agreement is reached. On the basic markets, U.S. Treasury yields are slightly rising with oil prices near $110 per barrel.
The EUR/PLN exchange rate starts the day near 4.24, and EUR/USD near 1.164. No significant data releases are scheduled for today, and market participants will await a set of domestic data and an auction planned for Thursday, which could push yields higher.
Zloty falls to 4.24 per euro, and 10‑year yields test the 6% barrier
Yesterday's equity session was dominated by index gains. The small‑cap index remained almost unchanged from Friday's close, while other indices rose about 0.8‑1.8%.
The domestic currency market saw strengthening. The zloty gained to about 4.242 from about 4.25. Many emerging market currencies lost to the euro, although currency changes to the common currency were relatively limited in the region. Also on the interest‑rate market, yield changes were small, in the 3‑4 basis‑point range, but by the end of the day swap rates were close to opening levels.
By the end of the day, the 10‑year Treasury yield was close to 6%, a significant resistance level that had not yet been broken in yesterday's session. On the short end of the curve, market rates slightly fell. Core inflation data had limited impact on the market. Core inflation in April 2026 was 3.0% y/y and 0.9% m/m, versus 2.7% y/y and 0.5% m/m in the previous month.
EUR/USD and bonds at key levels
On foreign markets, European indices recorded modest gains, and U.S. index futures recorded modest declines amid recent yield increases. Investors are assessing the latest information coming from the Persian Gulf.
On Monday, Iranian media reported that the U.S. proposed a temporary lifting of sanctions on Iranian oil, a key demand from Tehran to reach a peace agreement and reopen the Strait of Hormuz. The Trump administration decided on another lifting of sanctions on Russian oil. Iran repeated its demands on Monday addressed to the U.S.
These primarily involve freeing Iranian assets frozen abroad and lifting international sanctions that paralyze its economy. D. Trump previously signaled frustration with Iran and said, "time is running out," after drones attacked a nuclear plant in the United Arab Emirates. Meanwhile, Iranian authorities established an institution to manage the Strait of Hormuz and sent a new peace proposal to the U.S. via Pakistan. A G7 finance ministers' meeting also took place on Monday.
Debates focused on rising public debt, bond market volatility, and the negative effects of the war with Iran. The EUR/USD rate rose slightly to about 1.165 from about 1.162, reaching technical resistance levels noted in April amid a lack of significant U.S. or eurozone data. After a strong rise in the previous week, bond yields fell about 5‑6 basis points, though they rose again slightly by the end of the day. German 10‑year yields finished the day near 3.16%.
U.S. 10‑year Treasury yields slightly fell to about 4.60%.
