Inflation markedly below expectations

In accordance with the data published by Statistics Poland (GUS), CPI inflation did not change between January and February, came in at 4.9% YoY, below the market consensus (5.4%) and our forecast (5.5%). The lower-than-expected reading for February is mainly due to the change of weights applied to the inflation basket (see below), which brought a significant downward revision of the price growth rate in January (from 5.3%).

A stronger growth in the prices of food and non-alcoholic beverages (6.2% vs. 5.5% in January) drove inflation up in February. This was mainly due to a stronger price growth in such categories as “vegetables”, “milk, cheese and eggs”, and “sugar, jam, honey, chocolate and confectionery”. The acceleration of growth in those categories was partly driven by low base effects, egg prices rising due to bird flu, and higher prices of dairy products in the global market (see AGRImap of 13/03/2025). Headline inflation, however, was driven down by a lower fuel price growth momentum (-2.6% YoY in February vs. 0.0% in January) caused by last year’s low base effect and by a sharp decline in PLN-denominated oil prices on the global market since the turn of January and February. We assess the core inflation to have dropped from 3.9% YoY in January to 3.6% in February. We estimate that the monthly core inflation in February stood at 0.3%, still above its seasonal pattern (0.1% for a February). In our opinion, it indicates that the elevated inflationary pressure still persists in the Polish economy. This makes us believe that the MoM growth in core prices will slow down in the months to come, though it will remain above its seasonal pattern.

Interesting changes in the inflation basket

Statistics Poland has also published revised weights applied to the consumer basket, which reflect the structure of expenses from household budgets in 2024. Notably, the share of “food and non-alcoholic beverages” category in overall expenses dropped to reach the lowest level since 2020 (25.87% in 2025 vs. 27.63% in 2024). This trend is consistent with the so-called Engel’s Law, which says that the consumer’s expenses on food increase along with growth in their wages, yet their share in overall expenditures drops. At the same time, it can be seen that heavier weights were applied to those services that had seen a relatively strong growth in prices in 2024 (“recreation and culture”, up by 0.8 pp., and “out-patient health care services”, up by 0.6 pp.). Stronger demand for motor cars led to the upward weight adjustment for that category (+2.1%) between 2024 and 2025 (in accordance with the data released by Statistics Poland, retail sales in the “motor vehicles, motorcycles, parts” category rose by approx. 20% YoY in 2024).

Inflation to drop markedly only in H2 2025

We forecast that inflation will stay close to 5% until June 2025. We anticipate that it will reach its local peak at around 5.1% in March 2025, and then it will gradually start to fall. Our scenario assumes that inflation will stay close to the upper band for deviations from the inflation target (3.5%) despite a strong decline in H2 2025. Consequently, we expect the average annual inflation to print at 3.9% YoY in 2025 vs. 3.6% in 2024.

Today’s weaker-than-expected data on inflation in January and February are slightly negative for the PLN and yields on Polish bonds.