Despite increased pressure on prices, inflation in Poland has been rising by less than expected, economists at Commerzbank said in a note on August 20.

Polish headline CPI inflation was 2% for July and core inflation stood at 0.6%, according to the local stats office. Eurostat's HICP measure however registered a slower 1.4%y/y reading for July.

“Core HICP in seasonally-adjusted m/m terms registered a less than 0.1% increase in July. In other words, despite a tightening labour market and solid wage growth through the first half of 2018, there has been no visible acceleration in underlying consumer prices; the little acceleration that is seen in headline CPI is all fuel price driven,” analysts at Commerzbank said in a note.

Fuel prices are expected to continue growing on the back of rising oil prices, but they are not feeding through into Polish core inflation and the expectation is that the oil price rises will be capped by market conditions.

“What is more, there are tentative signs of peaking in the labour market data already. All in all, there has been no development to give the council hawks an upper hand in the forthcoming MPC meeting. Loose monetary policy is, therefore, set to continue, and this is likely to produce gradual zloty depreciation,” Commerzbank concluded.

Labour wage inflation has been a concern for all Central and Eastern Europe (CEE) markets, but after robust growth last year, the CEE boom has passed its peak and growth is expected to moderate over the rest of this year.