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Consumer prices rise 3.1% y-o-y in February

Consumer prices were 3.1% higher on average in February 2019 than a year earlier, just over the 3.0% mid-term target of the National Bank of Hungary (MNB), data from the Central Statistical Office (KSH) showed on Friday. Significant price rises were measured for alcoholic beverages and tobacco, as well as food.

CPI accelerated from 2.7% in both January 2019 and December 2018, having slowed from 3.1% in November, 3.8% in October, and 3.6% in September.

In February 2019, compared to February 2018, food prices increased by 5.2%. The price of alcoholic beverages and tobacco rose by 7.0% on average, within which tobacco prices rose by 9.6%.

Prices of clothing increased 2.1% and consumer durables prices edged up 0.7%. Household energy prices rose 1.2%, while service prices were up 2.7%. Prices in the category of goods that includes vehicle fuel inched up 0.6%.

CPI harmonized for better comparison with other EU member states was 3.2%. Core inflation, which excludes volatile food and fuel prices, was 3.5%, while CPI calculated with a basket of goods and services used by pensioners stood at 3.2%.

In a month-on-month comparison, consumer prices rose 0.6% in February, lifted by a 1.5% increase in food prices.

In January-February 2019, prices rose by 2.9% compared to the first two months of last year.

Consumer price data for March 2019 will be published on April 9.

Underlying inflation up over threshold - MNB

In its regular monthly analysis released after the publication of the KSH data, the National Bank of Hungary (MNB) attributed the rise in core inflation mainly to higher prices for processed foods and miscellaneous manufactured goods. Higher prices for fresh foods and vehicle fuel also contributed, it added.

The central bank acknowledged that all three of its measures of underlying inflation rose. The indicator for core inflation, excluding the effects of indirect taxes, stood at 3.2% in February, rising from 3.0% in the previous month.

The MNBʼs rate-setting Monetary Council said recently it is paying "even more attention than usual" to developments in the measures of underlying inflation capturing persistent inflationary trends, making the indicators, especially core inflation excluding indirect tax effects, a bellwether for a shift in monetary policy.

The MNBʼs indicator for demand-sensitive inflation, which excludes processed foods from core inflation, stood at 3.1% in February, rising from 3.0% in the previous month. The indicator for "sticky price" inflation, which includes items for which retail prices vary, on average, by no more than 15% a month, stood at 3.6%, rising from 3.3% in January.

Householdsʼ inflation expectations "remained at moderate levels" in February, the central bank said.

Speaking to state news agency MTI, ING Bankʼs chief analyst Péter Virovácz conceded that headline inflation was higher than expected. The higher tax rate on unhealthy foods lifted overall food prices, while an increase in excise tax raised the price of tobacco products, he noted.

Erste Bank senior analyst Orsolya Nyeste said food prices were to blame for the negative surprise in February. She added that fuel prices could cause CPI to rise in March.