Inflation finally in its bounds around the target. Wages accelerate?

POLAND - In Brief 31 Jul 2025 by Jan Hagemejer

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Today, Statistics Poland showed flash inflation numbers for July (they will be revised by mid-August). As expected, CPI went down from 4.1% y/y in June to 3.1% in July. While it was a sizeable change, and inflation finally got back to the permissible bounds of fluctuations around the target, the drop was less pronounced than expected. And what is worse, the drop was caused mainly by the non-core factors, in particular, energy and fuels. Graph 1 shows that there was a sizeable increase in energy prices exactly 12 months ago, and hence, the drop in overall CPI is to a large extent an effect of the high base last year. The behavior of the core inflation reflects the above regularities. The core inflation has fluctuated around the same rate over the last few months. Our estimate puts it at 3.4% in July, it was 3.4% in June, 3.3% in May and so on. Therefore, while it has been in the 1.5-3.5% permissible bounds for some time, it does not indicate further disinflation. Wage developments in June are also a bit surprising, with the annual wage growth accelerating from 8.4% in May to 9.0%. Compared to May 2025, wages also visibly increased (Graph 2). While the annual increase was also influenced by a low base in the previous year and some extra bonuses in mining, this does not explain the overall change. Wage disinflation visibly slowed in June. What does it mean for the MPC decisions? With lower inflation and higher nominal wage growth, consumption may pick up, slowing disinflation down. We should not, therefore, expect a rate cut in August and September, as even the NBP July projection shows a slight increase in inflation in Q3. However, MPC may still decide to cut rates at th...