The rise in Hungary's consumer price index (CPI) slowed to just 0.3% y/y in February, the statistics office reported on March 8.

The slowdown in consumer price inflation was even sharper than forecast. Expectations were lowered following January's apparent peak at 0.9% and hints from the Magyar Nemzeti Bank late last month that its inflation report – due out later this month – will likely cut the forecast substantially.

With the threat of a return to deflation clearly rising, February's CPI reading will raise the odds that the central bank could soon return to monetary easing by cutting the benchmark interest rate. The central bank has insisted for the last few months that unconventional policy is the best tool, but with the likely added impetus of further easing from the European Central Bank at its March meeting, the lack of inflationary pressures could nudge the MNB towards lowering the 1.35% rate.

As Raiffeisen Bank International point out, the poor February data "may confirm the [MNB's] next steps, as the market expects downward revision in [the] inflation path and further easing steps to curb currency appreciation and to fight deflation".

Unsurprisingly, oil was responsible for most of the damage once again. On an annual basis, motor fuel prices fell 11.2%, while electricity, gas and other fuels reversed 0.1%. Food prices rose by 1.3%, while an average price rise of 2.6% was observed for alcoholic beverages and tobacco, 1.8% for consumer durables, 1.3% for services and 0.1% for clothing and footwear. On a monthly basis, the CPI ticked down by 0.1% – the third such result in a row.

"Inflation is expected to moderate further and may temporarily fall into a negative territory in May," forecasts KBC. "The reacceleration of CPI may come as of August but may remain below 2% y/y even in December. For the whole year, we expect average inflation at 0.5%."