Hungary's annual consumer price growth eased to 1.3% in August 2013 from 1.8% in July, the statistics office said. The reading was below market expectations for a 1.7% growth, according to a poll by portfolio.hu. On a monthly basis, consumer prices in the country dropped by 0.3%, declining at the same pace as in the previous month.

The annual growth in food prices eased slightly to 2.7% in August from 2.8% in July. Prices of alcohol beverages and tobacco products rose by 9.1% y/y, after a 8.6% y/y hike the month before. Costs of services advanced by 2.9 % y/y in August, slower than July’s 3.5% y/y increase. Prices of motor fuels were up by 0.4% y/y in August, decelerating from a 1.7% y/y increase in the previous month.

By contrast, prices in the group of electricity, gas and other fuels declined by 8.7% y/y, with costs of natural gas decreasing by 6.1% y/y, while those of electricity and purchased heat dropping even faster - by 10% y/y. Prices of consumer durable goods extended their downward trend, dropping 2.2% on the year, reflecting continued weak household demand. Prices of clothing and footwear saw a 0.2% y/y fall.

The Hungarian central bank decided on August 27 to cut the base rate by 20bps to a new historic low of 3.80%, slowing the pace of the rate cutting cycle, as it reduced the base rate by 25bps in each of the previous twelve months. The Monetary Council considered that the bottom of the monetary policy easing could be at 3.00-3.50%. However, in our view the latest data on inflation may prompt again the 25bps cut at the next rate setting meeting scheduled for September 24.