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Gap between headline CPI, MNB inflation gauges closes in April

Food

The year-on-year "underlying inflation indicators" of the National Bank of Hungary (MNB) were little changed in April, and the gap between them and headline inflation closed with the further sharp drop in headline CPI, to 1.7% in April. The MNB indicator for core inflation excluding indirect tax effects was 1.6% in April, slightly down from 1.7% in March. The indicator for demand-sensitive inflation, which excludes processed foods from core inflation, was unchanged from March at 1.7%. The indicator for sticky price inflation, which includes items for which retail prices vary on average no more than 15% a month, also was 1.7%, unchanged from the previous month. Measured by the MNB gauges, underlying inflationary pressure was typically under headline inflation, but with the recent steep drop in the headline index, the gap between the headline CPI and the MNB indicators narrowed to 0.5 percentage points in March from 3 percentage points or more in most of 2012. Headline CPI was more than double the NBH indicators when the MNB Monetary Council started its easing cycle at the end of last August. The last time the gap between underlying and headline inflation closed was in spring 2005, the MNB figures show. Taxes remained a major factor behind inflation, a comparison with the indices calculated by the Central Statistics Office (KSH) show. KSH's seasonally-adjusted core inflation, which excludes volatile food and fuel prices, was nearly double the MNB's core index which excludes indirect tax effects as well: it slowed to 3.2% year-on-year in April from 3.4% in March. Tax-adjusted inflation, calculated by KSH dropped to 1.1% year-on-year from 1.5% in March. Headline inflation fell under the MNB's 3% inflation target in February and dropped further in March and April, supported mainly by a 10% cut in household electricity, gas and district heating prices mandated by the government from the start of the year and also by base effects.

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