Hungary's annual consumer price growth speeded up to 1.8% in May 2013 from April's record low of 1.7% y/y, the statistics office said. The reading was a touch below market expectations for a growth of 1.9% y/y. On a monthly basis, consumer prices in the country decreased by 0.1%, after rising 0.3% m/m in the previous two months.

Prices in the group of electricity, gas and other fuels declined by 8.5% y/y, with costs of natural gas and electricity decreasing by 10% y/y, while those of purchased heat dropping even faster - by 11.7% y/y. Consumer durable goods extended their downward trend, dropping 1.8% on the year, reflecting  continued weak household demand. Prices motor fuels declined by 0.7% y/y in May. Prices of clothing and footwear reversed to a 0.2 % y/y drop after increasing in April.

The growth in food prices speeded up to 3.7% in May, from 3.4% y/y in the previous two months. Prices of alcohol beverages and tobacco products rose by 9.8% y/y, after a 10.8% y/y growth the month before. Costs of services advanced by 4.1% y/y in the month.

The Hungarian central bank eased its monetary policy, cutting the key rate by 0.25pps in each of the last ten months to 4.50% as of May 28. The Monetary Council considered that inflation fell below the central bank’s inflation target already at the beginning of 2013 due to reduced utilities prices and the strong downward pressure stemming from subdued demand. The bank will consider a further reduction of interest rates if the medium-term outlook for inflation remains in line with the bank’s 3% target and the improvement in financial market sentiment is sustained.