April CPI matches consensus, CIB sees annual inflation at 2.3%-2.5%

Analysis

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While Hungary’s inflation rate essentially matched the market consensus, according to the Central Statistical Office (KSH), once again it came in below the preceding month’s year-on-year figure, according to a flash sent to the Budapest Business Journal by CIB Bank Hungary, which says annual average inflation is likely to arrive close to 2.3%-2.5% this year. 

April’s year-on-year CPI figure is a drop compared to February’s year-on-year 2.9% peak and March’s somewhat slowed 2.7% figure. CIB says April’s slowing is primarily due to the base effect as the month-on-month change surged to 0.4% from 0% in March. 

“Hence the shift does not imply an inflation turnover or a return to last year’s levels. This is also confirmed by core inflation data: the 1.9% rate reflects an essentially continuous rise from last December, to a more than 2.5-year peak by now,” CIB Bank says in the flash. Fuel prices (despite a still double-digit year-on-year rate) contributed to the downward shift (-1.4% month-on-month) and durable goods also became cheaper on average (-0.3% month-on-month), while other main price categories mostly showed an upward shift, CIB added.

Based on its own estimates, CIB Bank sees that a lasting break through the 3% threshold is unlikely this year. At the same time, the bank does not expect a return to a lasting downward trend, as it predicts annual average inflation is likely to arrive close to 2.3%-2.5% this year. 

“Wage rises and related strengthening in domestic demand and consumption is likely to show a stronger contribution to inflation this year. Oil prices are also set to support this direction with a moderately rising trend. As a sustained breach of the 3% inflation target is not projected, we do not expect monetary tightening this year, but non-conventional measures and changes in the monetary toolkit may be on the agenda in 2017, too,” CIB Bank concluded.

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