Polish CPI grew 2% y/y in June, the statistical office GUS reported on July 13.

The reading sees price growth hit the highest point since January and marks a third consecutive month in which inflation has accelerated since the 18-month low of 1.3% recorded in March.

The June reading of inflation is also 0.1pp over the GUS estimate published earlier this month, although not a surprise to the market, which expected growth of 2% all along. CPI growth came in at 1.7% y/y in May.

The pick-up in inflation is also unlikely to make Poland’s Monetary Policy Council (MPC), the recently very dovish rate-setting body, consider any policy change in the immediate future.

The combination of fast economic growth with only moderate inflation – which so far has been largely unaffected by fast-rising wages – is perfect for Poland, the NBP governor and chairman of the MPC Adam Glapinski said earlier this week after the MPC left interest rates unchanged for the 40th month in a row. That is expected to be the pattern until the end of 2019, Glapinski said.

At 2% y/y, price growth remains moderate and in line with the most recent inflation projection of CPI at 1.5%-2.1% in 2018. Analysts also predict inflation could hit the 2% mark once again in July, before receding to around 1.5% from August onward because of the high base effect.

The risk to that outlook is the current drought in Poland that may push prices of food upward if this year’s harvest is diminished by lack of rain. The scale of a possible pick-up could be 0.1pp-0.2pp, according to bank BZ WBK.

The annual CPI growth in June was once again driven by rising prices of food and non-alcoholic drinks, which became 2.7% more expensive in annual terms in June, as well as prices in the transport sector, which gained 8.6% on the year.

Most other segments also recorded price growth in June, except for textiles and shoes, where prices dropped 4.2% y/y, and communications with a price fall of 1.6% y/y. Prices also fell in the lump sector of “other goods and services,” at 0.95 y/y in June.

In monthly terms, CPI inched up 0.1% in June, slower than the m/m expansion of 0.2% seen in May.