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Analyst: 0.4% drop in CPI doesn't mean deflation

Analysis

The Consumer Price Index dropped 0.4% year-on-year in October, following a record 0.5% drop in September, according to data published today by the Central Statistics Office (KSH), but an analyst said it is still too early to talk about deflation in Hungary.

CPI started flat in the first half of the year (January: 0.0%, February: +0.1%, March: +0.1%, April: -0.1% and May: -0.1%) before slipping at a then-record 0.3% in June. Analysts have been predicting flat prices for the rest of this year, but this latest price drop has again stirred concerns. Although Gergely Tóth, an analyst from BudaCash, said deflation is not a problem yet.

"We cannot talk about deflation, as the figures of the past month do not imply it. The unfavorable figures are due to the latest round of government-mandated utility tariff reductions," he said. "The disappearance of the utility tariff reduction and expected rise of residential consumption will raise CPI. Further petrol price reductions might affect the index negatively, however the index is not expected to slip any further."

Goldman Sachs analysts said in October that they expect Hungarian inflation to accelerate to 3% by mid-2015, in line with the central bank’s targets.

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