Hungary's annual consumer price growth eased to 1.8% in July 2013 from 1.9% in June, the statistics office said. The reading was below market expectations for a 2% growth, according to a poll by Bloomberg. On a monthly basis, consumer prices in the country decreased by 0.3% after rising 0.2% in the previous month.

The annual growth in food prices decelerated to 2.8% in July from 4.1% in June. Prices of alcohol beverages and tobacco products rose by 8.6% y/y, after a 8.8% y/y hike the month before. Costs of services advanced by 3.5 % y/y in July, slower than June’s 4% y/y increase. Prices of motor fuels were up by 1.7% y/y in July.

By contrast, prices in the group of electricity, gas and other fuels declined by 8.8% y/y, with costs of natural gas and electricity decreasing by 7.4% y/y, while those of purchased heat dropping even faster - by 10% y/y. Prices of consumer durable goods extended their downward trend, dropping 2.1% on the year, reflecting continued weak household demand. Prices of clothing and footwear edged down by 0.2% y/y.

The Hungarian central bank cut the key rate by 0.25pps in each of the last twelve months to 4% as of July 23. The Monetary Council considers that the base rate could be lowered further but in smaller steps, by 10bps instead of 25bps. The bottom of the monetary policy easing could be at 3.00-3.50%. The central bank also intends to give forward guidance based on three factors: medium-term inflation outlook, financial stability considerations and assessment of the real economy.