Poland's October inflation falls to 3.5% on a temporary fuel tax cut

For borrowers with zloty mortgages and variable-rate loans, the practical effect is at least a few more months at a 3.75% reference rate. The open question is whether the temporary fuel tax cut will be extended.

A headline drop built on a tax cut

The drop looked like a decisive win against inflation. It also sits exactly at the upper limit of the NBP's 2.5% target plus or minus one percentage point. On Commerzbank's seasonally adjusted measure, though, the price level fell 0.3% month on month. Passenger fuel prices dropped 9.7% month on month, cutting their estimated contribution to annual inflation by 0.8 percentage points. Commerzbank analyst Tatha Ghose called the reading highly misleading as a signal of underlying inflation. He said it reflected a temporary tax intervention, not genuine disinflation. The measure is currently scheduled to expire at year-end. Ghose expects it is likely to be extended.

So the improvement is largely arithmetic.

Core and wages stay quiet

Underneath the fuel noise, core inflation, excluding food and energy, likely fell below 3% in October, according to ING. The MPC noted a decline in core inflation in October in its November statement. Wage growth is the bigger anchor. The minimum wage rises 3% in 2027. That is the second consecutive year at that pace, against increases of around 20% in 2023-24. ING's model shows a benign core path once the energy shock expires somewhere in 2027. Contained wage growth holds it down. That gives the council room to wait.

The fuel shock that came before

October's drop reverses a spike that hit in midsummer. Fuel drove almost all of the acceleration in July CPI to 3.0% year on year from 2.5% in June. The standard 23% VAT rate on fuel returned from a temporary 8% rate. The price cap was removed at the start of July. Retail petrol and diesel prices rose 15.8% month on month. Annual fuel inflation jumped to 7.0% from 1.3% in June.

Citi Handlowy forecast that inflation would exceed 3.5%, the upper bound of the tolerance band, by December. It got there in September instead, at 4.1%.

The bank also warned that a further rise in oil and fuel prices could push the annual rate above 4%.

What the council does with it

The NBP kept the reference rate at 3.75% in November. The MPC repeated the final two paragraphs of its October statement without changes. Its list of risk factors stayed unchanged: fiscal policy, regulated energy prices, the economic outlook and wage growth.

The November projection put CPI at around 4.2% in 2027 and around 2.9% in 2028, against 2.7% and 2.2% in the July projection. That is a large upgrade to next year's path.

Some council members had already moved. Ludwik Kotecki expected a rate-hike discussion in October. He saw the November projections as a basis for one or two 25 basis point increases. That would apply if they showed inflation above 4% next year, Commerzbank noted on 7 October. ING expects no change at the December meeting and a cumulative 50 basis points of hikes in the first quarter of 2027. Commerzbank said the softer October reading will probably delay tightening but does not negate the case for it. It expects the zloty to keep underperforming.

What happens next

Electricity and gas tariffs for 2027 are due to be announced in mid-December. Large increases could lift the whole inflation path.