Inflation has taken a tumble. May's price drop surprised economists

Thanks to cheaper fuels and lower heating prices, May inflation turned out to be slightly lower than expected. However, it still remains too high and this state of affairs will most likely continue in the next few months.

In May 2025, the Consumer Price Index (CPI) was 4.1% higher compared to the same month last year – according to a quick estimate by the Central Statistical Office.

However, the basket of goods fell by 0.2% compared to April. This result for the entire basket is due to a further drop in fuel prices, which in May were on average 3.7% cheaper than in April and already 11.4% cheaper than a year ago - according to data from the Central Statistical Office. In addition, the prices of energy carriers (probably mainly heating fuel) were 0.3% lower than in the previous month. On the other hand, food prices went up by 0.4% MoM and 5.5% YoY. However, in the annual data we still feel the effects of last year's increase in the VAT rate on food products, which was raised from 0% to 5%.

Economists were fairly widely expecting a drop in CPI inflation in May, but they did not predict a drop in prices from April. The median forecast was for a result of around 0.1% MoM and 4.2% YoY. The actual result turned out to be slightly lower than most estimates.

Moreover, thanks to the May drop in the CPI index, the average monthly increase of this indicator for the last three months decreased to 0.13%. If this result is maintained for the next 12 months, the annual CPI inflation would amount to only 1.61% next year and would be even below the 2.5% target of the National Bank of Poland. Already in April we saw a significantly lower inflation reading than in previous months . However, in January, February and March (after the revision of the so-called inflation basket) CPI inflation in Poland was 4.9%. This inflationary "plateau" was also in force in the autumn 2024, when the annual CPI dynamics was shaping at the level of 4.7-5.0% .

It is worth noting that the spring decline in CPI inflation was primarily a result of the fading effect of last year's high base . Let us recall that in April 2024 , the increase (or rather the restoration) of the VAT rate on unprocessed food from 0% to 5% came into effect. The second high base effect will "fall away" in July, when we compare ourselves with the gas and energy tariffs raised in July 2024. Economists estimate that for this purely statistical reason, CPI inflation may fall to around 3%.

It is also worth remembering that these readings will most likely continue to exceed the 2.5% inflation target of the National Bank of Poland. Only for 4 of the previous 67 months did CPI inflation form within this target. As a result, the NBP inflation target was permanently exceeded, both in the medium and long term. The average (geometric) CPI inflation for the last 5 years was 7.47%, for 10 years it was 4.34%, and for 20 years it was 3.32%.

The average annual CPI inflation for 2024 was 3.6% according to the Central Statistical Office. This is still too much, but also significantly less than in previous years. The result for 2023 is 11.4%, in 2022 the average annual inflation was 14.4%, and in 2021 5.1%. Since this was only a "quick estimate" of April inflation, we have full data broken down into individual categories and specified specific goods. This information will be shown in the report, which will be published in mid-June.

Source: