Hungary’s CPI increased to 1% in October, which represents a three-year high, statistics office KSH reported on November 8. 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 October reading strengthens hopes of a significant recovery in the headline data, which will support the Magyar Nemzeti Bank's pledge that it will not cut benchmark interest rates.

The main driver of the CPI rise in October was the ongoing increase in fuel prices, in parallel with the stabilisation on global oil markets. A hike in excise duty in Hungary also contributed.

Consumers paid 1.6% more for motor fuels than in October last year, so “the price decrease, lasting for two years, was broken,” KSH notes. Food prices increased 0.4%; alcoholic beverages and tobacco rose by 2%, services by 1.6%, and clothing and footwear by 0.5%. Electricity, gas and other fuels were unchanged.

Hungary's core inflation index - which omits erratic prices including global commodities – remained unchanged at 1.4% y/y. On a monthly basis, CPI rose 0.6% in October.

Analysts of KBC suggest inflation could push as high as 1.5% y/y by the turn of the year, which would help average inflation rise to 0.4% for the year and 2% in 2017.

Analysts at Erste Group offer a similar estimate. Next year, they expect the base effect to further support an increase in the 12-month rate, but they add that “changes in the VAT rate should mitigate this effect”.

While CPI remains well below the 3% mid-term inflation target of the Magyar Nemzeti Bank (MNB), the stronger CPI reading appears likely to confirm current monetary policy. The 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.