Poland’s consumer prices rose by 4.2% year-on-year (YoY) in April, a decrease from the 4.9% YoY rise seen in March. This reading was 0.1 percentage point below both our forecast and market consensus. The most significant price increases came in the food and non-alcoholic beverages sector, which rose by 5.3% YoY, and energy prices, which increased by 13.0% YoY. However, fuel prices saw a notable decline of 8.3% YoY. Based on these trends, we estimate core inflation eased to 3.4-3.5% YoY in April, compared to 3.6% in March.
Factors Contributing to the Decline in Inflation
The drop in inflation can be attributed to three main factors. The first is the base effect on food inflation, which resulted from the reinstatement of VAT on food in April 2024. This caused a drop in the annual food inflation rate from 6.7% to 5.3%. Secondly, the annual rate of fuel prices decreased to 8.3% from 4.7% in March, influenced by the depreciation of the dollar and lower oil prices on international markets. Thirdly, the easing of inflation was supported by slower wage growth and reduced demand, leading to a gradual decline in core inflation dynamics.
Impact on National Bank of Poland’s Monetary Policy
This CPI data holds significant implications for the National Bank of Poland (NBP) and its upcoming decisions on interest rates. With inflation running below the NBP’s March projection, the data strengthens the argument for potential interest rate cuts during the next Monetary Policy Committee (MPC) meeting. The Polish economy’s inflation trajectory in 2025 is expected to follow a path closer to the NBP’s target of around 3% YoY once energy price unfreezing effects expire in July 2024. This aligns with both market expectations and the views of MPC members.
Global Economic Conditions and Rate Cut Forecast
As global economic conditions weaken, with disinflationary effects from an influx of Chinese goods, Poland’s inflation outlook is expected to continue its downward trend. We forecast a 50 basis point (bp) rate cut from the NBP in May, followed by a total of 125 bps in rate cuts for the full year, reflecting the broader global economic slowdown and Poland’s own evolving inflationary pressures.