Hungary’s CPI remained in negative territory in July, with prices falling 0.3% y/y compared to a 0.2% decrease in the previous month, statistics office KSH reported on August 9.
Hungary slumped back into deflation for the first time in six months in March. After a swift rebound in April, prices fell again in May and have remained in negative territory since. The consumer price index decreased 0.3% y/y and 0.2% m/m in July. The annual drop was the deepest since September, illustrating a continuing lack of inflationary pressure amid the ongoing slump in global commodities prices.
The fall was below the expectations of analysts and the Magyar Nemzeti Bank, which has forecast the inflation will remain rooted to around 0% in the coming months. The central bank has repeatedly guided that it plans to leave benchmark interest rates at a record low of 0.9% and use unconventional measures to loosen policy. However, with deepening deflation joined by fading industry and economic growth, there is a building suspicion that the MNB could put its focus back on conventional monetary easing in the coming months.
The MNB is likely to "consider cutting rates again by early next year," suggest analysts at Commerzbank. However, others remain convinced the MNB will hold to its professed course. "CPI in July does not significantly modify inflation expectations," writes CIB. "With this, we do not expect a change in monetary policy; the benchmark rate could remain at the current level during the second half of they year.”
The MNB announced last month that it will revamp its three-month deposit facility, aimed at loosening monetary conditions and pushing banks to use capital to lend or buy sovereign debt. While recent sovereign debt auctions suggested that the tactic is working regarding state debt sales, in terms of monetary policy, the jury remains out. Whether a third month of deflation in a row will encourage discussion of further cuts to the benchmark in the longer term remains to be seen.
The decrease in CPI in July was mainly driven by falling fuel prices, which decreased 13% y/y. Food prices increased 0.2%, within which prices of seasonal food items increased 7.1%, but pork prices were cut by 14.2%. Alcoholic beverages and tobacco became 1.8% more expensive, services 1.3%, consumer durables 0.2% and clothing and footwear 0.9%.