CPI remains below mid-term target, but core inflation rises

Figures

Consumer prices were 2.7% higher on average in January 2019 than a year earlier, level with the rate of inflation in December. Significant price rises have been measured over the past year for alcoholic beverages and tobacco, as well as food, according to the latest release of monthly data from the Central Statistical Office (KSH).

Headline CPI has now dropped below 3.0% - the mid-term target for "price stability" of the National Bank of Hungary (MNB) - for the second month in a row, down from 3.1% in November, 3.8% in October, and 3.6% in September.

Headline inflation in January was lifted by a 6.9% rise in the price of spirits and tobacco products. The public health tax on spirits rose 20% from January 1, 2019. At the same time, an exemption from tax for herbal liqueurs and pálinka ceased, noted state news wire MTI.

Food prices rose 4.2% in January, the price of clothing increased 1.5%, and consumer durables edged up 0.8%. Household energy prices rose 1.2%, while service prices were up 2.8%. Consumers paid 3.0% less for motor fuels.

CPI harmonized for better comparison with other EU member states was 2.8% in January. Core inflation, which excludes volatile food and fuel prices, was 3.2%, while CPI calculated with a basket of goods and services used by pensioners stood at 2.7%. 

In a month-on-month comparison, consumer prices rose 0.3% in January, lifted by a 2.2% rise in prices of spirits and tobacco products and a 1.0% increase in food prices.

Consumer price data for February 2019 will be published on March 8.

MNB measures of underlying inflation up

In its customary monthly analysis released after the publication of the KSH data, the MNB attributed the 0.4 of a percentage-point rise in core inflation in January to the increase in excise taxes on tobacco and a pick-up in services price inflation. It also noted the impact of the reduction in the VAT rate on heat-treated milk and the increase in the public health tax on spirits on the January data.

The MNB acknowledged that all three of its measures of underlying inflation rose. The indicator for core inflation excluding the effects of indirect taxes stood at 3.0% in January, rising from 2.9% in the previous month. The indicator reached the 3.0% mark for the first time since February 2012.

MTI noted that MNB Deputy Governor Márton Nagy said in January that if core inflation excluding tax effects reaches or rises above 3.0%, this could be sufficient grounds for the central bank to start tightening monetary policy.

Meanwhile, the MNBʼs indicator for demand-sensitive inflation, which excludes processed foods from core inflation, rose from 2.8% to 3.0%, while the indicator for sticky price inflation, which includes items for which retail prices vary, on average, no more than 15% a month, increased from 3.1% to 3.3%.

Householdsʼ inflation expectations "remained at moderate levels" in January, the central bank noted.

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