Inflation in Poland below 4% for first time in almost three years

Annual inflation in Poland stood at 3.9% in January, decelerating sharply from 6.2% in December, preliminary data from Statistics Poland (GUS), a state agency, show.

It was the lowest figure Poland has seen in almost three years, during which time inflation reached a peak of 18.4% in February last year. The slowdown in inflation has been mainly driven by falling fuel and energy prices.

However, while annual inflation slowed, January’s month-on-month inflation figure showed that prices increased 0.4% compared to December.

Inflation in Poland started to accelerate in 2021 when the economy opened up after the pandemic-induced lockdowns. Price growth further accelerated in 2022 with the outbreak of war in neighbouring Ukraine but has slowed sharply since reaching its peak last February.

January’s figure of 3.9% was the lowest since March 2021 and came in lower than the 4.2% anticipated by analysts. The slowdown was driven in particular by an 8.1% year-on-year drop in fuel prices and 2.1% drop in energy prices.

The low reading was also the result of the high base effect from January last year when inflation stood at 16.6%.

At the same time, however, food prices increased by 4.9% year-on-year in January, while alcohol and tobacco prices rose by 8.8% year-on-year. Housing prices, despite the fall in energy prices included in that category, also rose by 2.3%, suggesting an increase in rents.

Poland recorded Europe’s second-fastest annual house price growth in the third quarter of 2023 and it has also seen one of the fastest rises in rental prices since 2015 among OECD countries.

Analysts at state-owned PKO BP bank estimate that in January core inflation – a measure that excludes goods with the most volatile prices, such as fuel and food – eased to 6.2% year-on-year from 6.8% in December. On a month-on-month basis, core inflation may have increased by 0.4%, they said.

Analysts at ING Bank this week warned that, while inflation may come in at around the central bank’s 2.5% inflation target in March, around 4-5 percentage points of inflation is hidden in the government’s energy price freeze for households, schools, hospitals and churches as well as in 0% VAT on food.

The energy price freeze is set to remain in place until at least the middle of this year, and zero VAT on food until March.

The fall in the inflation rate to 3.9% means that interest rates have become positive, noted analysts at PKO BP bank.

“These elements suggest that the chances of [an interest] rate cut in March should not be ruled out,” they said in a comment to the data, adding, however, that indications coming from the central bank tend to point to a stabilisation of interest rates, currently at 5.75%, in the coming months.

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Main image credit: Orlen (press materials)

Alicja Ptak

Alicja Ptak is senior editor at Notes from Poland and a multimedia journalist. She previously worked for Reuters.