Inflation surges in Poland in July after unfreezing of electricity prices

Inflation in Poland reached 4.2% in July – up from 2.6% in June and the highest level this year under the new government that took office in December – following the partial unfreezing of energy prices at the start of this month.

That also meant that, for the first time in six months, inflation was above the central bank’s target of 2.5% (+/- one percentage point). However, the reading was slightly lower than analysts’ expectations of a price rise between 4.4% and 4.6%.

On a monthly basis, prices rose by 1.4% in July, the highest figure since January 2023 and up from 0.1% in June, show the new figures from Statistics Poland (GUS), a state agency.

July’s inflation was driven mainly by energy prices, which rose by 10% compared to a year earlier and by 11.8% on the previous month. Meanwhile, food prices were up by 3.2% year-on-year but were down 0.5% month-on-month. Prices of fuels for private transport rose by 1.1% year-on-year and were unchanged month-on-month.

“The bulk of the change in inflation is energy, but the scale of secondary effects in the following months is unknown,” economists from mBank noted on X. They added that increases in water and sewage prices, among other things, also added to inflation, although exact figures on this are not yet available.

They also estimate that annual core inflation, which excludes volatile energy and food prices, has stopped falling and accelerated from 3.6% in June to between 3.7% and 3.8% in July.

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At the start of July, Poland’s government partially unfroze energy prices for households, ending a measure introduced in 2023 under the former Law and Justice (PiS) government amid the energy and inflation crisis caused by Russia’s war in Ukraine.

From 1 July, the cap on electricity prices for households rose to 500 zloty/MWh (€116.60) from 412 zloty/MWh. Meanwhile, the prices of distribution charges – accounting for around 45% of the electricity bill – have been completely unfrozen, reports broadcaster TVN24.

Less affluent households can apply for a so-called “energy voucher“, an allowance that will help them to reduce energy bills by between 300 zloty (€69.96) and 1,200 zloty (€279.85) in the course of this year.

Poland saw the EU’s third-highest rise in household electricity prices in the second half of 2023, with costs up by almost 27% on a year earlier https://t.co/8n1PFOz7yv

— Notes from Poland 🇵🇱 (@notesfrompoland) April 26, 2024

According to forecasts, inflation will continue to accelerate in Poland in the coming months.

The projection published in July by the National Bank of Poland (NBP), the central bank, assumes that inflation will reach around 5% by the end of the year and will accelerate further above 6% in the first months of 2025. In the second half of next year, it is expected to slow back down to around 4-4.5%.

The central bank estimates that inflation will return to its target of between 1.5% and 3.5% at the beginning of 2026.

„(…) uważam, że mimo wszystko ta projekcja jest bardzo optymistyczna (…)” – mówi prof. Grażyna Ancyparowicz. Zobacz całą rozmowę ⬇ https://t.co/F0aiknyQyp pic.twitter.com/XU3yhVOYT9

— Biuro Prasowe NBP (@BiuroNbp) July 5, 2024

Main image credit: Arthur Lambillotte / Unsplash