The Polish economy today faces a tricky inflation environment shaped by strong cost-side inflationary pressures but supported by a robust economic environment. More recently, inflation data reveal a striking unweighting—the consumer price index (CPI) basket. This policy shift has reduced headline inflation by 0.4 percentage points. Real wages in Poland have begun to calm down after three years of double-digit increases. This new development is a strong indication of a shift in the species’ economic tailwind across the country.
With core inflation finally beginning to cool off, the NBP now has hard choices to make about the future course of monetary policy. Indeed, the most recent projections from our Monetary Policy Council (MPC) show inflation running much lower than these officials anticipated back in March. At the time, they were clearly expecting high inflation to persist, with core inflation still expected to be 4% at the end of 2025. Considerations in the evolving environment have moved the MPC to a more cautious stance. They are calling any rate increase an “adjustment” rather than initiating a new broader monetary easing cycle.
Recent Economic Indicators
The recent economic indicators show a puzzling picture for Poland’s economic prospects. In May, the flash CPI came in at +4.1% y/y, decidedly under market consensus expectations. A few things behind this surprising drop in inflation. One big reason for that is the overall cooling in core inflation, which strips out food and energy costs and settled at 3.3% y-o-y.
On September 12, the Energy Regulatory Office (URE) announced this new level for regulated gas prices. ORR says this change will be adopted in July. We estimate that this change will save households an average of 10% on their gas bills. Overall, this was a very large drop in gas prices, likely to reduce yearly CPI inflation by 0.2–0.3 percentage points. In doing so, it will contribute to reducing overall inflationary pressures at the same time.
Governor Adam Glapiński has emphasized that while the MPC has made recent adjustments to policy rates, investors should not anticipate further cuts in July. He suggested that the council needs to see more detailed information ahead of pledging to more drastic monetary policy shifts. This prudent approach is indicative of a greater recognition of the challenges inherent in navigating inflation, interest rates, and overall economic health.
Monetary Policy Council’s Strategy
In May, the MPC surprised many naysayers by cutting its policy rates by 50 basis points. With this decision, the reference rate is now 5.25%, which is quite appealing. This decision sought to promote the economy’s continued expansion, especially in light of changing economic conditions and developing inflation moderation trends. The MPC’s prevailing mood is one of wait and see, rather than a starting point for a new rate cutting cycle.
Future Implications
With Poland’s latest economic outlook severely impacted by rapidly rising inflation, major issues remain about the future course of monetary policy going forward. With inflationary pressures still coming down, the MPC will need to make crucial calls about whether there should be more upward adjustments to interest rates. The moderation in wages and core inflation point toward an economy that is finding its feet, but the jury is still out.
It is in investors and market participants interest to closely watch for further news from both the NBP and MPC. As recently as last week, Governor Glapiński stressed the need for Hawkishness. This all goes to prove that in the future, any shift in monetary policy will rest largely on careful interpretation of today’s economic data.