Hungary CPI likely "surged and peaked" last month, says City


Hungary's headline consumer inflation is likely to have surged higher from an already elevated year-on-year rate last month, but is also likely to have peaked and should now start to embark on a downward path, London-based emerging markets economists said in early forecasts prior to the data release due on Thursday.

Analysts at Goldman Sachs expect that headline inflation accelerated to 6.3% in September, "further away from the ... central bank's inflation target of 3.0%" after the 6.0 print in August.

The expected uptick is likely to have come on account of higher global commodity prices.

However, September should also mark a peak in inflation in Hungary as recent currency strength should continue to limit the effects of external shocks, while base effects reflecting tax hikes in January 2012 should lead to a more pronounced fall in inflation at the start of 2013.

For the National Bank of Hungary (MNB), inflation figures and the outlook "will be of secondary importance", even though risks are on the upside and inflation will likely remain above the target until end-2013. "We thus expect the MNB to look through this increase in inflation and also remain in easing mode ... a stronger forint, lower bond yields and narrower CDS spreads would increase the probability of cuts in Q4 and beyond" - analysts at Goldman Sachs said.

Emerging markets economists at JP Morgan in London revealed an even more bearish CPI forecast, saying that Hungary's inflation likely continued to accelerate sharply last month to 6.5% year-on-year. This surge is likely to have come on the back of a further pickup in food inflation owing to both a negative base effect and rising agricultural commodity prices, rising fuel prices, and further pass-through from recent tax hikes and administrative price increases.

"Our forecast is 0.2 percentage point above consensus", they said.

The monetary council of the MNB, however, is likely to focus on underlying inflation excluding food, energy and tax changes as much of the inflation overshoot owes to cost shocks, JP Morgan's analysts said.


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