Poland’s core inflation, an indicator that measures price growth without including prices of food and energy, eased growth to 3.3% year on year in May (chart) after a gain of 3.4% y/y the preceding month, the National Bank of Poland (NBP) said on June 16.

Core inflation thus affirmed position within the central bank target range of 1.5%-3.5% after reaching that level win April – the first time since January 2020.

Headline CPI growth came in at 4% y/y in May, easing from a gain of 4.3% y/y the preceding month, the state statistical office GUS said earlier in June.

“Inflation will decline sharply towards the inflation target in July due to a high base effect – which owes to the partial liberalisation of energy prices in July 2024 - a reduction in gas prices for households, and the continued decrease in core inflation,” ING said in a note.

Falling core and headline inflation also provide rationale for the NBP to ease its monetary policy more.

The NBP reduced its reference interest rate by 50bp to 5.25% in May on the back of easing headline inflation and slower wage growth. Another cut is now widely expected in July when the NBP will present its new inflation and GDP growth outlook.

The central bank also hinted that future rate cuts – if any – will be smaller in scope, by 25bp only.

Risks to the NBP’s dovish stance include the economic situation in the Eurozone, a possible trade war between the US and the EU, and the recent escalation of violence in the Middle East that could drive up oil prices.