Low Polish inflation will convince policymakers to resume rate cuts soon

The StatOffice confirmed its flash estimate of December CPI inflation at 2.4% YoY. Compared with November, consumer prices were unchanged. Prices of goods went up by 1.3% YoY, while services' prices advanced by 5.2% YoY as compared with 1.4% YoY and 5.3% YoY, respectively, in November.

The decline in annual inflation relative to the previous month stemmed from a deeper price decline in transport (including lower gasoline prices) and a slower increase in food prices. Core inflation excluding food and energy prices was similar to that in November, when it was 2.7% YoY.

The slowdown in inflation suggests that price‑setting processes have undergone significant changes, and sellers’ discretion to raise prices is clearly more limited than during the energy shock and high-inflation period. Competitive pressure from cheap imports, the continued deflation in producer prices (PPI), slowing wage growth, and households’ still relatively high propensity to save are all constraining the scope for price increases.

The decline in inflation below the National Bank of Poland’s (NBP) target at the end of 2025 did not prevent the Monetary Policy Council (MPC) from shifting to a wait-and-see stance, as previously signalled; in January, the central bank’s interest rates remained unchanged. In our view, the pause in monetary easing will not last long, and another cut in the policy rate may come as early as March, coinciding with the update to the NBP’s inflation projection.

We assess that the current disinflationary trend is strong. A downward trend in global commodity prices, favourable harvests, and high grain stocks are keeping food prices low. The snowfall in January should protect winter cereals from frost damage and improve hydrological conditions in Poland. Low crude oil prices and a strong złoty are supporting declines in fuel prices, while pressure from cheap imported goods from China and slowing wage growth are contributing to a downward trend in core inflation.

In addition, the increase in regulated energy prices from January 2026 was modest and significantly lower than assumed in the previous NBP projections. We assume that by the end of 2026, the reference rate will be cut to at least 3.25%, in 25bp steps.