Year-on-year headline inflation rose 5.3% last month after a 5.7% print in April. Most London-based economists in an Econews survey had expected inflation to accelerate slightly in May, typically forecasting a 5.8% rise, and even those who saw CPI slowing down went only as far as predicting a 5.6% year-on-year rate.
Analysts at JP Morgan in London said after Tuesday’s data release that their 2012 average CPI forecast has now moved down to 5.6% from 5.9% previously.  “We expect inflation to fall further, to around 3.5% next year as the VAT hike falls out of the index, although several new taxes coming into effect in 2H/2012 will provide some offset”.
After the May CPI data, 2Q/2012 inflation is tracking about two tenths below the MNB’s March inflation projection, although the full-year figure should be broadly in line with their 5.6% forecast.
“We think that the benign structure of inflation … increases the chances of MNB rate cuts this year … We maintain our call for 100bp in cumulative cuts by end-1Q/2013”.
“We still think the M% will wait to see a sustained decline in risk premia on HUF assets before cutting rates, which is unlikely to materialize before an IMF/EU deal is concluded, probably not before September-October”, JP Morgan’s London-based economists said.
Analysts at HSBC, a major global banking group, said the seasonality of food prices will be the key factor influencing headline inflation in the coming months.
“We assume somewhat higher month-on-month food prices inflation than in 2011 that should push the headline inflation higher to 5.5%-5.6% in the summer months”. But this increase could be offset by falling fuel prices in the last quarter of the year and “we forecast CPI to decline towards 5% year-on-year by the end of 2012”.
In 2013 the impact of a 2pp VAT increase this year will fade away but new taxes, including on telecommunication services, are still likely to keep the headline inflation above the 3% central bank target.
This year the monetary policy outlook will be determined by the risk premium on Hungarian assets rather than inflation, elevated by one-off factors. However, inflation path will be important for the overall room for a potential monetary stimulus next year, provided the risk premium declines, HSBC’s London-based analysts said.