CIB sees upward inflation risk in wage growth

Analysis

An analysis by CIB Group observes that in the trend of inflation, the intensification of domestic demand and the effects of wage hikes continue to appear more slowly than expected, primarily due to demand emerging in the housing market. However, it adds, the ongoing rise in wages still represents a source of upward risk.

In an analysis sent to the Budapest Business Journal, CIB says the upward risk is also present due to international oil prices, though even with the last few months’ rise domestic fuel price growth remained below average.

Based on CIBʼs forecast, inflation is set to rise somewhat during the summer months, but still with year-on-year figures below 3%. Annual average inflation is likely to arrive close to the 2017 figure of 2.4%, while a sustained breach of the 3% inflation target is not projected.

CIB does not expect monetary tightening in this period. The lax monetary policy of the European Central Bank (ECB) also supports Hungary’s monetary room for maneuver, while the communications of the National Bank of Hungary (MNB) also reflect a strong commitment to loose monetary conditions, the analysis adds.

At the same time, non-conventional MNB measures and changes in the monetary toolkit may be on the agenda, CIB notes.

Underlying inflation stable - MNB

In its own monthly analysis released after the publication of April inflation data by the Central Statistical Office (KSH), the MNB said its measures of underlying inflation developments only "rose slightly" in April from the previous month.

"The measures continued to be at or around 2% and remained below the level of core inflation," it noted.

The indicator for core inflation excluding the effects of indirect taxes stood at 2.2% in April, edging up from 2.1% in the previous month.

The indicator for demand-sensitive inflation, which excludes processed foods from core inflation, rose from 1.8% to 1.9%.

The indicator for sticky price inflation, which includes items for which retail prices vary, on average, no more than 15% a month, increased from 2.1% to 2.3%.

Householdsʼ inflationary expectations "remained at moderate levels" during the month, the central bank said.

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