Inflation in Poland is rising due to the war in Iran. Interest rate cuts are becoming less and less realistic
The National Bank of Poland released the latest core inflation data on Monday afternoon. This indicator, which does not take into account energy, fuel and food prices, increased to 3% in April. year to year from 2.7 percent in March and 2.5 percent in February. On Friday, the Central Statistical Office reported that CPI inflation in Poland increased to 3.2 percent in April. year to year. Let us remind you that the NBP inflation target is 2.5%. +/- 1 percentage point
Core inflation does not take into account prices, which are largely determined on international markets (or are largely influenced by regulation) and over which the central bank has less influence. This measure better illustrates the internal inflation pressure and is crucial for the Monetary Policy Council's decisions regarding interest rates.
“Core inflation is accelerating: in April it increased to 3.0% y/y (from 2.7%), and the m/m dynamics (0.9%) indicate a clear rebound in price pressure. Most core measures are rising, which suggests that disinflation is subsiding and returning to the upper limit of the NBP target” – Alior Bank economists wrote on the X website. Another increase in this indicator is expected in May, especially in the context of the low reference base from a year ago.
Bank Millennium economists, announcing today's data, wrote that, according to their forecasts, core inflation will increase to approximately 3.5% in the second half of the year. y/y (which would mean reaching the upper limit of the NBP's inflation target), but in their opinion this should not force the Monetary Policy Council to change its rhetoric and interest rates.
Let us recall that in May and April the Monetary Policy Council decided to keep interest rates unchanged. This means that the NBP reference rate is still 3.75%. And it seems that the chances of the long-awaited reductions – even before the war in Iran broke out – are now slim. The reason is the increase in oil and fuel prices, which translates into growing inflationary pressure in the economy. There are even estimates of interest rate increases in Poland.
In March, the Council decided – despite the ongoing conflict in the Middle East and the pro-inflation surge in oil prices – to cut the cost of money by 0.25 percentage points. In February, January and December the rates did not change. In total, since May 2025, when monetary policy was resumed, the NBP reference rate has decreased by 2 percentage points.
Inflation will increase. Interest rates too?
VeloBank economists wrote in their Monday morning commentary that the increase in core inflation to 3%. with CPI inflation at 3.2%. increases the risk of inflation exceeding the upper band for deviations from the NBP target already in May. Bank Pekao experts assume that if the status quo in the Persian Gulf is maintained, in the following months we will see inflation rising to 4%. y/y at the end of the year.
ING Bank Śląski economists wrote that their inflation forecasts (3.5% average CPI in 2026) are higher than the market consensus. However, they expect that a more lively discussion on the possible need to increase interest rates will take place after the Monetary Policy Council gets acquainted with the July macroeconomic projection.
See also: What's next for interest rates? Disturbing words were spoken by the MPC
“We still assume that interest rates will remain unchanged in 2026, but if the Hormuz blockade extends beyond the end of June, the risk of signal rate increases (0.25-0.50 percentage points) increases. For such a decision to be made, we also need symptoms of a wide spread of inflation and signals of a growing risk of second-round effects and an increase in inflation expectations. For now, this scenario is far from over,” ING experts added.
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NBP, own study
Bank Millennium analysts pointed out that the inflation data for April mainly shows the effects of more expensive fuels and gas. “The vast majority of the remaining categories, in our opinion, indicate the stability of inflation processes. These data do not change our assessment that the baseline scenario is the stabilization of interest rates for a longer period of time. – they noted.
“We maintain the scenario of a gradual increase in inflation in the following months, with a local maximum of 4.1% y/y in December, and the stabilization of NBP rates until the end of 2027, although the risk increases signaling rate increases in the second half of 2026,” Credit Agricole economists wrote.
They added that the weaker-than-expected GDP reading, in turn, signals a slight downside risk for their economic growth forecast throughout 2026 (3.3%), especially given the continuing uncertainty related to the conflict in the Middle East.
