Hungary CPI shows “worrisome dynamics”, City says


Hungary’s inflationary dynamics are “far from the 3% target” and the central bank (MNB) is likely to have to continue its tightening cycle, London-based emerging markets analysts said on Thursday.

Commenting on April’s CPI figures released on Wednesday, JP Morgan said in its daily emerging markets research note that despite the headline reading being in line with the consensus, there are “a number of worrisome developments” in the release. The food price shock does not seem to be fading; after a few months of slowing, food price inflation picked up again. Inflation in the coming months will be additionally boosted by hikes in gas prices. As a result, “we expect inflation to remain stuck around 6.5-6.7% ... through July”.

JP Morgan said it feels confident that the MNB will raise rates further despite the firming forint. “We stick to our call for another 25bp rate hike this month and now see a 40% chance of a further 25bp hike thereafter”, implying the base rate climbing to 8.75%. In a separate comment, Goldman Sachs said that inflation is on a declining trend, but “the details will not convince the MNB”. The seasonally adjusted month-on-month core inflation reading still indicates that the underlying dynamics “are far from the 3% target ... more like 5-6%”.

Even if some of that is due to food prices, the 2009 target of 3% “is getting out of reach”, Goldman Sachs said. The other issue is that wage growth so far this year has been higher than the MNB expected. Upside inflation risk will remain a prominent theme in coming months, and “we expect that the MNB will need to tighten monetary policy more than expected and drive the currency significantly stronger ... our forecast is that rates will increase to 9% from the current 8.25% in the next three months”. (MTI-Econews)

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