Poland’s inflation rate could rise to approximately 3% as early as July following a sharp increase in fuel prices, according to analysts at Citi Handlowy. The bank expects price growth to move above the upper boundary of the central bank’s target range before the end of 2026, potentially delaying further interest-rate cuts.
A renewed surge in fuel prices is set to interrupt Poland’s recent disinflation trend and place the Monetary Policy Council under pressure to keep borrowing costs unchanged.
Citi Handlowy estimates that consumer prices may have increased by approximately 3% year on year in July. The projected acceleration would follow a monthly rise of more than 15% in retail fuel prices.
Poland’s annual CPI inflation rate stood at 2.5% in June, meaning that the fuel shock alone could produce a visible increase in the headline index within a single month.
The bank’s analysts expect inflation to continue rising during the second half of the year and exceed 3.5% by December. This level represents the upper boundary of the tolerance range around the National Bank of Poland’s 2.5% inflation target.
A further increase in oil and fuel prices could produce an even stronger inflationary effect, potentially pushing the annual rate above 4%.
Fuel prices become the main inflation risk
The latest inflationary pressure is primarily connected with the rapid rise in global oil prices and its transmission to Polish petrol stations.
Fuel has a direct influence on the consumer price index, but its economic impact is considerably broader. Higher transport costs affect logistics companies, manufacturers, retailers and service providers, which may eventually pass at least part of the additional expense on to customers.
The indirect effects may therefore continue even after the initial increase in petrol and diesel prices has been reflected in the CPI data.
Businesses that rely heavily on road transport are particularly exposed. Higher fuel bills can reduce company margins, increase distribution costs and place renewed pressure on food and consumer-goods prices.
Citi’s forecast suggests that the inflation shock may persist for several months rather than being limited to a single statistical reading.
The scale of the impact will depend on the future direction of oil prices, the exchange rate of the Polish zloty and any measures introduced by the government to reduce the cost of fuel.
Government may consider another fuel-price intervention
Citi Handlowy analysts believe the government could consider reintroducing a mechanism designed to limit retail fuel prices.
Such an intervention could involve tax reductions, compensation for fuel suppliers or another form of price-control arrangement. A renewed support programme would limit the immediate impact of expensive oil on households and the consumer price index.
It would also give the Monetary Policy Council more time to assess whether the increase in inflation is temporary or likely to spread to other parts of the economy.
However, the government’s ability to finance another extensive support package is constrained by the condition of the public finances.
Prime Minister Donald Tusk has already indicated that the state cannot indefinitely use public money to keep fuel prices artificially low. This means that any new programme may be narrower, shorter or less generous than earlier interventions.
The government must therefore balance two competing objectives: protecting consumers from a sudden energy-price shock and preventing further deterioration in the budget deficit.
RPP likely to pause interest-rate cuts
The renewed inflation risk strengthens the case for keeping interest rates unchanged.
Citi expects the Monetary Policy Council to adopt a cautious approach and wait for more data before considering another reduction in borrowing costs.
The NBP reference rate currently stands at 3.75%. Until recently, falling inflation had created expectations that the Council might continue easing monetary policy.
A rise in CPI above 3.5% would make such a decision more difficult. Even when inflation is caused primarily by fuel and other external factors, the central bank must consider whether the shock could influence wages, consumer expectations and the prices of other goods and services.
The Council may also be reluctant to reduce rates shortly before inflation reaches or exceeds the upper boundary of the target range. Such a move could be interpreted as underestimating price risks.
A prolonged pause would affect households and businesses waiting for cheaper credit. Mortgage instalments would remain elevated, while companies would continue to face relatively high financing costs.
For savers, however, unchanged rates could support deposit returns and limit the decline in yields on some fixed-income instruments.
Inflation above 4% cannot be ruled out
Citi’s base scenario assumes that inflation will exceed 3.5% by the end of 2026. The bank also identifies a less favourable possibility in which CPI rises above 4%.
Such an outcome could materialise if oil prices remain high, the zloty weakens or fuel-price increases begin to spread more strongly across the economy.
The inflationary consequences would become more serious if businesses concluded that higher energy and transport costs were permanent. Companies could then adjust their price lists more broadly rather than absorbing the shock through lower margins.
Households could also change their behaviour if they expected prices to continue rising. Stronger demand for wage increases and accelerated purchases could make inflation more persistent.
The difference between a temporary fuel shock and a broader inflationary process will therefore be crucial for future monetary-policy decisions.
Polish economy remains resilient
Despite the deterioration in the inflation outlook, Citi remains relatively optimistic about Poland’s economic performance.
The bank expects GDP to grow by approximately 3.5% in 2026. This would indicate that the economy is continuing to expand despite several months of elevated oil and fuel prices.
Household consumption, a strong labour market and investment supported by European funding remain important sources of growth. Poland also benefits from a relatively diversified economy and lower dependence on individual export markets than some smaller countries in the region.
The resilience of domestic demand may help businesses withstand higher energy costs. At the same time, robust economic activity can make the central bank more comfortable with keeping interest rates unchanged because the economy does not urgently require additional monetary stimulus.
Strong growth accompanied by rising inflation nevertheless creates a difficult policy combination. The authorities must prevent price pressures from becoming persistent without unnecessarily weakening investment and consumer spending.
Public finances are the main source of concern
Citi identifies Poland’s fiscal position as the principal short- and medium-term risk.
The general government deficit remains close to 7% of GDP, significantly above the European Union’s 3% reference level. Although nominal economic growth may gradually reduce the deficit-to-GDP ratio, the available data provide limited evidence of a rapid structural improvement.
Weak central-government revenue is a particular concern.
According to figures cited by the bank, VAT revenue was 2.2% lower than a year earlier, while excise-duty receipts fell by 6.4%. The decline is disappointing because both taxes are closely linked to consumption and should generally benefit from continued economic growth and rising nominal prices.
Lower-than-expected tax income reduces the government’s ability to introduce new support programmes without increasing borrowing or cutting expenditure elsewhere.
The decision not to raise personal income-tax thresholds may improve future revenue, as wage growth gradually moves more taxpayers into higher effective tax brackets. However, this mechanism is unlikely to resolve the wider fiscal imbalance on its own.
Limited room for pre-election spending
Poland is due to hold its next parliamentary election by autumn 2027, a period in which political pressure for new social programmes and tax relief would normally increase.
Citi believes the government has very limited room to launch significant fiscal stimulus ahead of that vote.
Additional spending could worsen the deficit, increase government borrowing requirements and create further inflationary pressure. It could also complicate Poland’s efforts to comply with the EU’s excessive-deficit procedure.
The government may therefore be forced to choose more targeted measures rather than broad programmes covering all households.
Any intervention in the fuel market will be closely watched because it could reveal how the authorities intend to balance inflation control, social expectations and fiscal consolidation.
A costly nationwide price-support scheme could provide immediate relief but weaken the budget. Allowing fuel prices to adjust fully to market conditions would protect public finances but place a greater burden on households and businesses.
Markets will watch inflation and fiscal data
The coming inflation releases will be important for the Polish zloty, government bonds and expectations concerning NBP interest rates.
A July CPI reading close to 3% would broadly confirm Citi’s scenario. A significantly higher result could strengthen expectations that interest rates will remain unchanged for an extended period.
Polish bond yields could rise if investors begin to price in more persistent inflation or larger government borrowing needs. The effect on the zloty would be less straightforward.
Higher interest rates usually support a currency by making local assets more attractive. However, concerns about public finances, energy costs or weaker investor confidence could work in the opposite direction.
The most favourable scenario would involve a temporary fuel-driven increase in inflation combined with continued GDP growth and gradual fiscal consolidation.
A less favourable outcome would see expensive fuel spread across the economy while weak tax revenue prevents the government from responding without increasing the deficit.
For now, Citi’s assessment is that Poland’s economy remains strong enough to absorb the shock. The price of that resilience may be a longer period of unchanged interest rates and inflation remaining above the central bank’s target midpoint through the end of 2026.
