Economic comment

March CPI inflation in Poland printed 4.9% y/y, unchanged from January and February. Monthly price growth was revised up to 0.2% m/m from 0.1% m/m shown in the preliminary reading. We estimate core inflation excluding energy prices at 3.6% y/y - slightly higher than after the preliminary reading. Services prices slowed to 6.4% y/y from 6.6% y/y and goods prices accelerated to 4.4% y/y from 4.3% y/y.
We expect CPI growth to slow to 4.2-4.3% y/y in April. Another significant fall in inflation is very likely in July. By the end of the year, CPI inflation should be close to 3.5% y/y, in our view. Such an inflation trajectory supports an interest rate cut, which we believe will take place as early as May, given the recent dovish turn in the MPC members’ rhetoric.
According to a new publication by GUS, the rate of growth of services output was at 7.7% y/y, above the 4.1% y/y in December and averaging just under 4% y/y for the whole of 2024.
 

The start of Donald Trump's presidency has brought major changes in trade policy, including the wider use of tariffs (...) According to our estimates, the impact of the tariffs already announced by the EU on CPI inflation is negligible, as it only affects about 10% of the products Poland imports from the USA. However, a potential 10% tariff covering all imports from the USA would add 0.2 percentage points to the CPI in the short term, assuming a strong pass-through from import to retail prices. Potentially, the largest effect would come from the energy sector (about half), but we actually deem very unlikely that energy goods will be subject to tariffs.

The NBP president started his conference stating that the MPC has changed its position into dovish. Glapiński said that room to cut rates in the nearest period has appeared, but MPC needs more data to actually do it. The MPC is likely to decide to lower rates if another set of data also proves weak, which we understand as a suggestion that May cannot be ruled out. Glapiński also said he preferred a gradual correction of rates, not a start of a cycle and that he would like to move by 25bp or 50bp, depending on the data. Glapiński said he imagined two cuts by 50bp followed by a pause and then another move this year.

After the NBP conference we cannot exclude that the first move will happen in May, but it will be strongly dependent on the nearest figures. We think that the upcoming set of data will not confirm the February pessimism, but on the other hand CPI inflation is likely to slide markedly, so there is no clear pattern as regards the possible impact on the MPC.