ING economists Rafal Benecki and Adam Antoniak note that Poland’s January CPI surprised on the upside due to technical factors and volatile components, but headline inflation remains below the National Bank of Poland target. They argue disinflation is deeply rooted and expect a 25bp rate cut in March, with scope for a lower terminal policy rate.

Polish CPI surprise within disinflation trend

"Poland’s January CPI inflation surprised to the upside due to technical quirks and volatile prices. Still, headline inflation has moderated below the central bank target. The higher-than-expected reading will not prevent a 25bp cut in March as the disinflationary trend is deeply rooted."

"According to the flash estimate for January, Polish CPI inflation declined to 2.2% YoY (ING and market consensus at 1.9% YoY) from 2.4% YoY posted in December. That means that for the second consecutive month, headline inflation was below the National Bank of Poland (NBP) target of 2.5% (+/- 1 perc. point)."

"Further disinflation was mainly driven by a decline in gasoline prices, and fuel fell 7.1% YoY after a decline of 3.1% YoY in December. We see three main reasons why inflation did not drop as much as expected."

"Despite the upward surprise in the annual January CPI inflation, the overall picture of price developments is positive, and disinflationary trends are deeply rooted. That is why we see room for further monetary policy easing."

"We believe that the March NBP macroeconomic projection will paint a much more favourable picture of the inflation outlook than the one presented in December. As a result, the target rate may turn out lower than the 3.50% often mentioned by policymakers in recent weeks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)