Hungary: Inflation higher than expected

Rising food prices are stoking inflation, for instance the price of flour increased by 29% in the last three months, and the price of seasonal fruits and vegetables rose earlier than usual. Whether the ongoing food price hike is temporary or a lasting trend is still unclear. The fundamental trends do not pose a major imminent threat, which is also true of core inflation, said Mariann Trippon, senior analyst of CIB Bank. How the Monetary Council of the central bank (MNB) will react is still open, inflation in itself, however, should not hinder a cut on interest rates, added Trippon.

Analysts surveyed expect a 6.5% – 7.3% annual inflation in December this year and 3.8% – 4.0% next year. The newly published October inflation figure of 6.4% was higher than earlier projected, due to the food price shock and an unexpected rise of drug prices, said Erste Bank analyst, Orsolya Nyeste. In Hungary, the food price hike set in earlier than elsewhere in the region so it might abate sooner as well, though, at present, it is rippling on in processed food and restaurant prices, said Gergely Forián Szabó, senior analyst of fund manager Pioneer. While the monthly 4% rise in clothing prices seemed natural for both analysts, the monthly 2.7% price hike with drugs came as a surprise. The data of Central Statistical Office (KSH) has shown a 19% price hike since January, and the underestimation must be blamed on the sampling method, said Forián. Nyeste expects no further base rate cut this year, while Forián expects it to be decreased by 25 basis points before the end of 2007. For next December both expect a 6.5% base rate. (NG, MH, Gazdasági Rádió)