Prices of Polish food and non-alcoholic beverages have rebounded at 2.9% YoY vs.1.9% in March. This was the result of the return of higher regular VAT rates on food. However, the higher VAT rates appear to have been partially absorbed by retailers as Poland’s price war among retailers continues. But it’s the purchasing power that matters.

The increase in core inflation remains a major problem. While in YoY terms it has slowed from 4.6% to around 4%, in MoM terms it increased by 0.5%. Companies also continue to pass on high-wage growth to consumers. Consumer demand should grow over the coming months, mainly due to high household income growth. This will most likely mean that core inflation will remain high in MoM terms. At the same time, the base effects of 2023 will expire. Consequently, ING expects core inflation to stabilize or even increase to around 4.5% YoY at the end of 2024.

Headline inflation should rise to around 5.5% YoY at the end of 2024 and to 6.5% in the first quarter of 2025, alongside the gradual return of market electricity prices for households. Poland is in a decidedly different situation than the core markets. Core inflation is growing fast, while high wage growth supports a continuation of this trend. This does not provide room for rapid NBP rate cuts, although the ECB is likely to start its easing cycle in June. Analysts expect interest rates to remain unchanged until at least the end of 2024.

Activity in areas related to public investment (i.e., civil engineering construction) improved from -17.8% YoY in March to +7.8% YoY in April. However, it should not be assumed that the scale of such a rebound is sustainable. The accumulation of EU-funded infrastructure projects in 2023 resulted in high growth rates in civil engineering construction at the end of last year. Now, the launch of projects from the RRF and the new EU budget is still slow.

Housing reported weak activity. The construction of buildings fell by 5.9% YoY, and the pattern of business days is also largely responsible for the improved dynamics compared to March (-16.1% YoY). According to companies analyzing the real estate market, apartments were put on offer by developers at the beginning of the year at a much faster rate than they were sold. In many cities, the number of apartments on offer is approaching record figures. The large increase in housing prices in 2023 and 2024 meant that even with support, many people could not afford their own property.

At the same time, the deadline for the introduction of a new government program to support the mortgage market seems to be receding (from the original date of 1 July). It will reportedly also be more spread over time than that brought forward by the previous government. Therefore, it may have to wait until 2025 for a larger rebound in activity.

Polish retail sales rose by 4.1% year-on-year in April (consensus: 5.2%), following an increase of 6.1% YoY in March. Seasonally adjusted data points to a 3.5% MoM decline in sales after they stabilized in March.

On an annual basis, impressive growth was reported in car sales (33.8% YoY). If the sales of durable consumer goods are recovering, the decline in furniture, consumer electronics, and house appliances sales moderated to -3.3% YoY in April from -8.5% YoY in March.

The biggest negative surprise was the decline in food sales (-6.8% YoY). This may have been due to an early Easter in 2024 and a high base from last year, as most Easter spending probably occurred in March.

Consumers are still uncomfortable with the currently very high price level, and in turn they prefer to build savings. Anecdotal evidence suggests that the fear of war is elevated, which translates into a lower marginal propensity to consume and an increased tendency to accumulate savings. Despite that, analysts expect consumption growth to keep recovering in the second quarter of the year.

ING forecasts of 2024 economic growth remain unchanged at 3%. They expect the expansion to come about on the base of consumption, driven by the assumption of improving real household income amid lower inflation.