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April CPI likely eased further, say London analysts

Analysis

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Hungaryʼs headline consumer inflation is likely to have eased further last month, largely on the back of base effects, London-based emerging markets analysts said Tuesday ahead of today’s data release, according to a report by Hungarian news agency MTI.

Forecasts for April range from 2.1% to 2.4%, after a 2.7% year-on-year hike in March and a 2.9% annual rise in February.

Morgan Stanleyʼs analysts said they see inflation easing to 2.3%, lower than the 2.5% the MNB expects for April in its Inflation Report, "although we would note that the gap between the data and the MNBʼs near-term forecast opened up mostly in March" when the central bank had expected a 3% headline figure.

"In our 2017 outlook, we took our growth forecasts for 2017 up to 2.9% [from the] previous 2.5%, on higher fiscal stimulus and an expected rebound in EU flows. This would be much higher than Hungaryʼs potential, which we estimate at 1.7%," they said.

In this environment, underlying inflation is set to pick up as the government announced a plan to boost wages in a labor market which is already very tight, with the fiscal stance loosening and consumption running strong. 

"While some believe there is slack in the economy, we would take a cautious view and see CPI risks as tilted to the upside," Morgan Stanleyʼs analysts said.

London-based economists at Goldman Sachs said they expect headline inflation to decline to 2.4% in April, above the consensus forecast of 2.3%. "We expect core inflation to decline from 1.8% to 1.7%," they added.

However, inflation is still seen as likely to return to the 3% target in the first half of 2018, in line with the March Inflation Report, Goldman Sachsʼ analysts stressed.

Economists at JP Morgan forecast that base effects drove "a sharp but temporary inflation slowdown" to 2.1% last month, but inflation should rebound to 2.4% already in May. 

In addition to base effects, a cut in excise taxes will have pushed fuel prices lower in April, they noted.

However, "across the region the gradual pickup in core inflation continued in April, we believe, driven by rising imported goods inflation as well as stronger services inflation on the back of robust consumer demand," JP Morganʼs analysts added.

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