Hungary’s CPI reaches 3.5 year peak in December

Analysis

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Matching the market consensus, Hungary’s CPI inflation indicator was up 1.8% in December, from November’s +1.1%, reaching a 3.5% peak, according to a flash sent to the Budapest Business Journal by CIB Bank Hungary. The annual inflation figure was 0.4%, after negative figures in 2014 and 2015, the flash noted.

Similarly to October and November, the December figure was boosted by fuel prices, following a two-year downward trend that had clearly been broken in the fall, the CIB analysis notes, tagging it the strongest inflationary impact again (4.1%) on a month on month comparison.

“While the pickup of inflation may also reflect stronger domestic demand, the dynamics of service prices and the prices of durable goods has remained moderate so far. However, the annual average rise of service prices came above the average of total inflation in 2016,” the CIB Bank analysis says.

While inflation is still far from the central bank’s mid-term target of 3% and may be considered low in absolute terms the upward trend has become clear, in line with expectations, the CIB analysis points out.

CIB Bank thinks inflation will hike to 2% by as soon as January, while average inflation is also likely to be above 2% for 2017, though not in an unbroken and continuously rising trend.

CIB Bank foresees wage raises and related strengthening in domestic demand and consumption as influencing this year’s inflation. “Oil prices are also set to support this direction with a moderately rising trend. A sustained breach of the 3% inflation target is unlikely to come this year, though. Also, 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 analysis concludes.

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