CPI inflation fell to 11.5% YoY in June, and down from 13% YoY in May. The main contributors to the decline were fuel (this contribution fell by 0.6pp), food (0.3pp lower), and energy prices (0.3pp lower). ING estimates that core inflation was 11.2% YoY, down from 11.5% YoY in May. Yet this is still a slower decline than elsewhere in the Central and Eastern European region. Whether, apparently, external supply shocks are rapidly receding, headline inflation is falling faster than expected in many emerging countries. Poland stands out in the CEE region with a slow decline in the core rate and a persistent expansionary fiscal policy. Analysts are clearly not in favor of NBP cuts, although they do expect that to happen.

Industrial production fell by 3.2% in May for the fourth consecutive month. Producer price growth slowed to 3.1% year-on-year from 6.2% YoY a month earlier. Producer prices remain on a disinflationary path, and the Monetary Policy Council expects CPI inflation to fall further as well. Recent statements by the National Bank of Poland indicate that the drop in CPI inflation to single-digit levels in September could result in a rate cut this autumn. ING sees a number of inflation risks in the medium term, highlighted by central bankers in core markets maintaining a restrictive monetary policy stance.

In fact, in Poland, real interest rates are still negative. Also, the difference between Poland and countries in the CEE region (Czech Republic, Hungary, Romania) is also visible in core inflation, which is falling much faster there than in Poland. Analysts are concerned that the rate cuts in Poland (more than one in 2023?) will mean that it will take a long time for inflation to return to target.

In May, construction output fell by 0.7% year-on-year. This is primarily the result of a large decline in the construction of buildings, which was not offset by growth in categories related to infrastructure investment, such as civil engineering construction. The situation in infrastructure construction, on the other hand, is shaped by the closing of projects still financed by the “old” EU budget, which will expire at the end of this year. This category is to remain the main driver of construction this year.

Retail sales fell by 6.8% YoY in May, pointing to continued weakness in household consumption in the second quarter. Price pressure is abating in the short run, but mid-term upside risks remain substantial due to the tight labor market, buoyant wage growth, and expansionary fiscal policy.