Hungary’s CPI swung back to positive territory in September following four months of deflation in a row, statistics office KSH reported on October 11. The 0.6% y/y rise in the index was largely in line with market expectations.

The main driver of the rise was the base effect, as last year’s drop in oil prices starts to form the base. The rise pushes hopes of a significant recovery in the headline data.

On a monthly basis, CPI rose 0.2% in September; the core inflation index - which omits erratic prices including global commodities – accelerated to 1.4% from 1.2% the previous month. That has expectations of a broad recovery rising.

“We may see above one percent level in October for the first time since September 2013,” analysts of KBC write in a note. They suggest the CPI could expand as high as 1.7% y/y by the turn of the year, pushing average inflation to 0.4% for the year.

Analysts at Erste Group offer a similar estimate. They even add that they “see upward risks due to rising oil prices, and the build-up of wage pressure.”

The stronger CPI reading appears likely to confirm current monetary policy. The Magyar Nemzeti Bank (MNB) has repeatedly guided that it plans to leave interest rates at a record low of 0.9% for the foreseeable future and use unconventional measures to loosen policy.

The MNB capped its three-month deposit facility at HUF900bn (€2.9bn) until the end of the year, while on October 7 it announced a one-week deposit facility as well as one-week, one-month and three-month forint swaps to fine-tune forint liquidity.

The MNB "may highlight that inflation may reach its target only in the middle 2018, which confirms its view that no base (interest) rate change is required in the next 18 months," suggests KBC. "If they see the need of rate cut, the NBH may decrease further the limit of 3-month deposit,” the analysts continue.

Consumers still paid less for motor fuel prices than in September last year (prices fell 3.9% y/y), but this decrease was “already much lower than in previous months”, KSH notes. Food prices increased 0.8%; alcoholic beverages and tobacco rose by 2%, services by 1.3%, and clothing and footwear by 0.2%. Electricity, gas and other fuels were unchanged.