Poland's consumer price index grew 2.2% y/y in February, adding 0.4pp to the January reading, statistics office GUS announced on March 14.

With Polish interest rates sitting at 1.5%, the rise of the CPI pushes real interest rates deeper into negative territory, while moving closer to the National Bank of Poland's (NBP) inflation target of 2.5%. The NBP’s Monetary Policy Council (MPC) maintains however that the swift rise in inflation that kicked off in December is a temporary phenomenon under the influence of external factors and will level out shortly, pre-empting the need to hike rates. 

Most analysts concur. “In coming months the rise of inflation rate should become milder. The base effects, [such as] the low price of oil at the beginning of 2016 will begin to fade out in coming months,” Erste predicts. “We see average inflation at 1.8% this year.”

mBank expects the CPI to reach the target in March, only to slow again in the following months.
 
In line with the analysis, prices of food and fuel drove the annual growth in February, GUS data shows. Food became 4.3% more expensive in annual terms, while prices in transport gained as much as 11.2%, including a sharp rise of 21.2% in fuels for private means of transport. In monthly terms, prices climbed just 0.3%.
 
The MPC is generally not expected to institute a hike in rates before 2018. The council also appears convinced that growth will return to form by the second quarter, as investment picks up.

Poland’s GDP expanded 2.8% in 2016 on the back of the weakest investment since 2010. The result was below the government’s outlook of 3%-3.2%, which was anyway a reduction on earlier predictions for an economic expansion of 3.8%.