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PKO BP SAPoland's energy price freeze in 2025 reduces CPI by 0.2-0.3 pp; earlier rate cuts expected (opinion)
Polish government’s decision to freeze electricity prices in 2025 is projected to lower the Consumer Price Index (CPI) trajectory by 0.2-0.3 percentage points, with a peak inflation rate of approximately 5.5 percent expected in March, according to analysts from PKO BP.
Meanwhile, economists at Bank Millennium suggest that this freeze could lead to earlier interest rate cuts, although no action from the Monetary Policy Council is anticipated before March. These developments highlight the significant impact of energy price policies on inflation forecasts and monetary policy in Poland.
According to the Council of Ministers' legislative work schedule, the government plans to extend the maximum electricity price for households below approved Poland's energy market regulator URE tariffs, suspend capacity fees for household consumers in 2025, and improve financial flows for compensation payments.
"We estimate that under this scenario, inflation would be around 0.2-0.3 percentage points lower than previously forecasted (assuming the reinstatement of capacity fees), peaking at about 5.5 percent year on year in March 2025, before returning to Poland's central bank NBP'S target range (around 2.5 percent ± 1 percentage point) by July-August 2025," they wrote.
The economists from Bank Millennium suggest that the continuation of electricity price freezes in 2025, even partially, indicates earlier interest rate cuts, although they do not expect the Monetary Policy Council to act before March.
"The new maximum price level is not yet known, which means electricity bills may rise, but less than without protective measures. If government announcements are realized, CPI inflation in 2025 would be lower than the NBP's baseline projection of 5.6 percent year on year," they stated.
The government is set to discuss a draft law aimed at limiting electricity prices and supporting certain consumers in 2023 and 2024. Overall, these developments indicate that the government's actions regarding energy prices will significantly influence inflation forecasts and monetary policy decisions in the coming years.
tus/ nl/ han/