Poland’s core inflation, which measures price growth without food and energy, fell to 11.5% y/y in May (chart), the expansion rate easing 0.7pp versus April, the National Bank of Poland (NBP) said on June 16.

It was only a second fall in core inflation’s y/y growth rate in nearly two years, with the index now joining other inflation readings in what analysts predict will be a fairly protracted easing of price growth.

"The pace of disinflation will visibly slow in the fourth quarter and a further decline to target cannot be taken for granted,” ING said in a comment, pointing to the expected rebound in economic activity later this year and expansionary fiscal policy. 

“The government has increased this year's state budget deficit to PLN92bn (€20.56bn) and will boost the 500+ child benefit to PLN800 in 2024. In addition, the minimum wage will increase by more than 20% next year. In our view, this will translate into continued double-digit growth in average wages in the economy, keeping core inflation elevated,” ING also said.

Historically, core inflation would fall more or less in line with easing CPI. Analysts say, however, that past trends were very much unlike today’s when inflation is accompanied by record-low unemployment, which is conducive to wages growing fast. 

Poland's gross wages indeed grew 14.3% y/y in the first quarter, still trailing March headline inflation by 1.8pp. 

CPI growth eased further to 13% y/y in June, the most recent reading from the statistical office GUS showed last week.

“In this context, a possible rate cut at the end of 2023 is more likely to be a one-off move, while the regular monetary easing cycle is likely to start in the third quarter [of 2024]. We note that Poland's core inflation picture is the least favourable in the CEE region,” according to ING.

The NBP's reference rate has been 6.75% since September.

In m/m terms, core inflation grew 0.4% in May, 0.8pp below the monthly expansion rate in April, the NBP data also showed.