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Hungary CPI likely up in February

Food

Hungary's year-on-year headline consumer inflation is likely to have accelerated further, potentially up to 5.8% last month on the back of the earlier HUF weakening, continuing pass-through of January's VAT hike, and potential boosts from fuel and food price dynamics, London-based emerging markets economists said prior to Tuesday's data release.

An Econews survey revealed forecasts ranging from 5.4% to 5.8%, reflecting uncertainties about how much of the VAT hike and the currency's weakness had actually managed to pass through into consumer prices.

Year-on-year CPI inflation rose 5.5% in January.

Economists at 4cast, a major London-based financial consultancy who were on top of the forecast range expecting a 5.8% year-on-year headline rate said that food prices are "a growing upside risk" as the implementation of EU regulations on chicken farming has put upside pressure on both egg prices and chicken meat, adding to the effects of increased fuel and feed costs and the general upside global food price trend.

The impact of strong forint volatility of January-February, however, compounding the VAT effects and a prolonged transmission period of recent excise tax increases "constitutes additional data forecast risks", 4cast's analysts said.

Economists at Goldman Sachs, expecting February's 12-month CPI rate to have accelerated to 5.7%, said the data will reflect the effects of VAT and excise tax hikes but also earlier HUF weakness and still high commodity prices.

However, given the still unknown pass-through of the January VAT hike to final consumer prices, or the possibility that weak domestic demand may have forced some price reductions after the January jump, this month's forecast "suffers from higher than usual uncertainty".

Going forward, "our strong view on oil prices means that we expect persistent inflation overshoot for the rest of the forecast horizon ... We currently expect inflation to increase to about 6.2% by end-2012, and then fall to about 5.2% by end-2013", London-based analysts at Goldman Sachs said.

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