CIB Bank analysts see inflation holding steady

Analysis

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Hungary’s May inflation figure of 2.1% published today by the Central Statistical Office (KSH) was unexpected, but the increase is still once again below the preceding month’s year-on-year figure by 0.1 pp, according to a flash comment sent to the Budapest Business Journal by CIB Bank.

“The y/y index reflects an ongoing downward move since the February peak of 2.9%, but already showing signs of stabilization: both the y/y and m/m figures were closer to those of the preceding month. Hence no signs of an inflation turnover are seen,” the analysis by CIB says. “This is also confirmed by the ongoing rise of core inflation: the 2.1% rate reflects an essentially continuous rise from last December, to a more than 2.5-year peak by now. At the same time, the difference between the headline and the core figures has disappeared – in the preceding five months core inflation was below the main data.”

CIB expects the inflation figure to stay under the 3% threshold for this year; however, analysts of the bank do not expect a return to a lasting downward trend either.

“As a sustained breach of the 3% inflation target is not projected, we do not expect monetary tightening this year,” say CIB analysts. “The ECB’s lax monetary policy also supports Hungary’s monetary room for maneuver for the rest of 2017, and this is likely to be confirmed by the ECB’s decision and macro-projections in June. Still, non-conventional MNB measures and changes in the monetary toolkit may be on the agenda in 2017, too,” the analysts add, referring to moves by the National Bank of Hungary (MNB).

CIB Bank puts average annual inflation for this year at 2.3-2.5%.

“Wage rises and related strengthening in domestic demand and consumption is likely to show a stronger contribution to inflation this year. Oil prices are also set to support this direction with a moderately rising trend,” the CIB flash says.

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