Hungary’s CPI increased by 2.3% in January from 1.8% the previous month, data from statistics office KSH showed on February 14. The rise was largely in line with market expectations.

CPI swung back to positive territory in September following four months of deflation in a row. The acceleration of the headline inflation rate seen in the final three months of 2016 is expected to continue this year. The revival of the CPI reading, however, is not likely to prompt a swift change to the Magyar Nemzeti Bank's (MNB) dovish stance.

In parallel with the stabilisation on global oil markets, a 15.2% y/y increase in fuel prices was the main driver of the rise in January. Price increases for pharmaceutical products, household products and recreational goods also contributed. 

On a monthly basis, CPI rose 0.4%. At the same time, the core inflation index - which omits erratic prices including global commodities – decelerated to 1.6% from 1.7% the previous month. This suggests that the inflationary pressure remains mild within the economy in spite of fast-paced (7.5%) net real wage growth seen in the first eleven months of 2016.  

In spite of the steady rise of CPI, the continued dovish stance of Hungarian rate setters at their January 24 meeting suggests that the MNB will maintain its ultra-easy policy and Hungary will probably be one of the last in the region to start tightening under reflation pressure. The central bank pointed out that Hungarian inflation expectations remain historically low, and CPI is expected to reach the 3% target only in the first half of 2018.