Hungary’s inflation hits four-year record, CIB says

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February’s inflation figure came in slightly above the market consensus, but once again significantly above the preceding month’s figure, reaching a four-year peak in year-on-year comparison, CIB Bank Hungary said in a flash sent to the Budapest Business Journal today.

Hungary’s consumer price index (CPI), a main indicator of inflation that measures changes in the price level of a basket of consumer goods and services, was up 2.9% on average in February compared to the same month of 2016, according to a first release of data published today by the Central Statistical Office (KSH).

“The pickup in inflation may also reflect stronger domestic demand, this time also reflected by the dynamics of service prices and the prices of durable goods, though the full impact of rising wages has probably not materialized yet. However, the annual average rise in service prices had come above the average of total inflation in 2016,” the CIB Bank flash notes. It adds that core inflation was 1.8% year-on-year, still in a rising trend close to a two-and-a-half-year peak.

Despite inflation approaching the central bank’s target of 3%, with the potential to touch or exceed 3% in the coming few months, CIB’s calculations suggest that this is not going to be a lasting process.

“In mid-year, levels close to 2.5% are likely to re-emerge. Annual average inflation is likely to arrive above 2.5% in 2017, though we do not expect an unbroken, continuously rising trend,” according to CIB.

Wage rises and related strengthening in domestic demand and consumption is likely to show a stronger contribution to inflation this year, CIB added.

“Oil prices are also set to support this direction with a moderately rising trend. As a sustained breach of the 3% inflation target is not projected, we do not expect monetary tightening this year, but non-conventional measures and changes in the monetary toolkit may be on the agenda in 2017, too,” the flash report concluded.

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