Analysts: Falling CPI not a cause for concern


January’s falling CPI figure of 1.4% was chiefly caused by the drop in the oil prices and does not put Hungary into a deflationary cycle, analysts told the Budapest Business Journal today.

“Although the underlying market tendencies have been known, the fall is still a minor surprise” András Somi, Head of Research and Content at KBC Securities Hungarian Branch Office said. However, “the measure shows a rise of 0.7%, excluding the changeable oil and food prices, which reveal stagnation”.

According to Buda-Cash analyst Bálin Török, "the negative figure is not a surprise, but its extent can be [...] since the end of last year the price of oil and the government’s utility price reduction have been affecting CPI, but in general, the prices of food are not growing either."

For this year Somi expects stagnation in the tendency of CPI. “Regarding the whole year, the measure is expected to be around 0%, which means stagnation, however, this can well be affected both directly and indirectly by the price of oil” Somi added.

Török also foresees stagnation as "inflation is expected to stay low for the upcoming period, however it will probably start increasing". Török added that he believes that "inflation will stay under 1% for the whole year, but it is very much dependent on oil prices and on the forint’s exchange rate."

Based on the lowered underlying inflation indicators of the National Bank of Hungary (MNB), Somi foresees that “in line with the expectations, the central bank will cut interest rates further”.

Despite the falling CPI figures of recent months, Somi believes that there is no ground to talk about a “serious deflationary spiral in Hungary, so far”. Somi argues that the falling CPI in the last months of 2014 were chiefly caused by the Hungarian government’s reduction of utility prices, while January’s CPI was deteriorated by falling oil prices. The dropped consumer prices “can generate residential consumption which will, in the long-term, drive CPI back to positive figures” Somi forecasts.

Török sees no tendency for deflation in Hungary either, and that no deflationary cycle would reach the country, however, Török foresees that the eurozone could be affected by deflation.

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