Inflation eases

Inflation in June dropped to 0.8 percent year-on-year from 0.9 percent the previous month. Prices decreased by 0.3 percent compared to a 0.5 percent growth in May. This leaves analysts positively surprised as their forecasts for the June CPI were 0.9 - one percent month-to-month and minus 0.2 month-to-month.

"Inflation is June was much lower than expected. For financial markets it means that the Monetary Policy Council (RPP) will not increase interest rates this year, and so bonds' interest might decrease," Ryszard Petru, BPH's chief analyst, told WBJ. He said that in 2007 the RPP might increase interest rates twice. "There are no premises for interest rates to be changed before 2007," Stanisław Nieckarz from the RPP told Reuters.

The inflation level in June was influenced by a drop in food and transport prices. Last month food prices decreased by 1.2 percent, the highest decrease being recorded by fruit - 10.2 percent. Transport prices declined by 0.1 percent compared to May.

According to Petru's initial estimates, in July inflation might be at the level of 0.9 percent while prices are likely to decrease by 0.3 percent compared to June, mostly due to a drop in food prices, which is forecast despite the drought in Poland. "Inflation is growing slowly and by the end of the year it might reach 1.4-1.5 percent," he says.