Hungarian inflation gained a little pace in July as it accelerated 0.2pp to 2.1% y/y, statistics office KSH reported in preliminary data released on August 8.

Following four months of decline, the reading shows a rebound from a June reading that was the lowest of 2017 to date, to leave the CPI sitting at the same level as seen in May. The month-on-month reading was flat yet again. 

The rise in CPI is unlikely to change the strongly dovish stance at the Magyar Nemzeti Bank. Rate setters at the central bank have recently noted concern that inflationary pressure is sinking once more.

Following a surge around the turn of the year, inflation decelerated in spring, floating further from the MNB’s 3% medium-term target. The trend suggests rate setters may have the space to maintain their loose monetary policy stance for some time yet.

That said, core inflation - which excludes energy and seasonal food prices and is regarded as a good indicator for underlying inflation dynamics - continues to rise. In July, the indicator hit a YTD high of 2.6% y/y.

Meanwhile, the headline CPI index remains heavily driven by erratic commodity prices, over which monetary policy has little influence. Fuel prices fell 1.5% m/m and 0.1% y/y, placing them in negative territory for a second month in a row. Food prices rose by 3.3% y/y, and consumers paid 1.8% more for services. The highest price rise was recorded for alcoholic beverages and tobacco, which rose 5.2%.

The CPI index for the first seven months of 2017 showed a rise of 2.3% y/y. Analysts had agreed that inflation had likely bottomed out in June, and could be set to rise over the coming months as food prices grow due to the cold spring. 

The 0.5bp gap between the headline and core inflation rates, which persisted for a second month, also suggests there is underlying inflationary pressure stemming from rising wages and strengthening private consumption. However, economists expect full-year inflation of around 2.4%, which suggests any tightening of monetary conditions is unlikely in the coming quarters.