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Analyst: CPI to stay low, deflation unlikely

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In light of the 0.9% decrease in Hungary’s December CPI figures, there is an increasing fear of deflation in the country, although this is still unlikely to happen, Buda-Cash Analyst Gergely Tóth told the Budapest Business Journal today. The overall inflation figure for 2014 came to -0.2%, which is the lowest figure since 1968.

The dramatic drop of vehicle gas prices and the governments scheme for reducing utility fees count as the main reasons for the unexpected drop in the consumer prices index, which was also boosted by discounted prices during the holiday season, according to Tóth.

“These factors and the current slide of the forint can amplify speculations that the National Bank of Hungary (MNB) will apply another interest rate decrease” Tóth added. Although analysts have recently voiced their expectations that the MNB will cut interest rates and the European Central Bank will launch its QE program, both of which could be favorable factors for the forint, “considering the Fed’s anticipated interest rate increase, MNB’s cut can become risky”.

Low CPI figures are expected for the future as “low vehicle gas prices are expected to last longer” and “the weakening of the forint, is also driving CPI down”.

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