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Analysts attribute lower than expected CPI to food, clothing prices

Food

Analysts attributed a lower than expected rise in consumer prices in September to food and clothing prices.

Consumer prices rose 3.6% year-on-year and fell 0.1% month-on-month in September, the Central Statistics Office (KSH) said on Tuesday.

Gergely Suppan of Takarékbank said the falling price of seasonal food and vacation services as well as the modest rise in clothing prices caused headline CPI to edge down in September. He expects weak consumer demand and a high base for food prices to temper inflation for the remainder of the year. The elimination of gas price compensation, the introduction of a tax on unhealthy foods and higher excise taxes are likely to raise CPI to 3.6-3.8% year-on-year in the coming months, he added.

Suppan put average annual inflation at 3.8% in 2011.

In 2012, a rise in the main VAT rate from 25% to 27% could cause inflation to reach 5% at the beginning of the year and lift average annual inflation to 4.4%, he said.

Inflation could drop to the 3% mid-term target by the beginning of 2013 as the above factors leave the base and could even stabilize below 3%. The National Bank of Hungary will not be, however, in a position to cut the base rate, mainly because of financial stability risks. The central bank is also expected to wait to see whether the tax rises have second-round effects.

Erste Bank's Zoltán Árokszállási also put down the lower than expected September CPI to food and clothing prices. He estimated consumer prices would rise 3.5-3.7% for the rest of the year and put average annual inflation at 3.8%.

The higher VAT rate will raise average annual inflation to 4.4% in 2012, he said.

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