Hungarian inflation surges in December

Hungarian inflation surges in December
By bne IntelliNews January 13, 2017

Hungary’s CPI jumped to 1.8% in December, the highest level it has reached since July 2013, data from statistics office KSH showed on January 13. 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, which supports the Magyar Nemzeti Bank's (MNB) pledge that it will not cut benchmark interest rates.

In parallel with the stabilisation on global oil markets, a 6.8% y/y increase in fuel prices was the main driver of the CPI rise in December. Price increases for pharmaceutical products, household products and recreational goods also contributed. 

On a monthly basis, CPI rose 0.4% in December. The core inflation index - which omits erratic prices including global commodities – accelerated to 1.7% from 1.5% the previous month.

"The increasing core inflation rate indicates that there is a mild inflationary pressure prevailing within the economy,” analysts at Erste write in a note. The upward pressure stems from the fact the fast-paced net real wage growth –  7.4% y/y in the first ten months of 2016 - probably have started to translate into higher consumer prices, they add.

Overall in 2016, the headline inflation rate averaged 0.4%, compared to -0.1% in 2015. Analysts at CIB expect the CPI will accelerate to average of above 2% this year. Erste has upgraded its 2017 inflation forecast by 0.3 pp to 2.3%.

While targeted VAT cuts may reduce the upward pressure on prices to some extent, the increase of the excise duty on tobacco products and the fast-paced nominal wage increase will put upward pressure on Hungarian inflation Erste suggests.

The stronger CPI reading should not deter the MNB from its dovish stance, however. The MNB has repeatedly guided that it plans to leave interest rates at a record low of 0.9% for the foreseeable future, but plans to use unconventional measures to loosen policy further. The MNB’s 3% inflation target is not expected to be met until mid-2018.

Data

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