Analysts: Hungaryʼs CPI likely back in positive territory in May

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Hungaryʼs consumer inflation is likely to have accelerated back to at least zero or slightly positive territory in May after a prolonged spell of deflation, London-based emerging markets economists said yesterday.

However, views on the central bankʼs policy rate path going forward diverge more widely.

Analysts at Goldman Sachs said they expect headline annual inflation coming in at around zero after a -0.3% print in April, mostly due to higher oil prices, an increase in food prices and base effects reflecting last yearʼs utility price cuts.

Headline inflation will likely remain close to zero in the coming months and increase more visibly at end-2015, to around 2.0%, and to as high as 3% in early 2016, mostly on base effects.

But it will likely fall back to the lower half of the central bankʼs target band of 3.0% +/-1pp as demand pressures emerge only slowly.

Consequently, "we still expect the MNB to cut the policy rate to 1.25% this year (...) But the implicit easing arising from the change in monetary policy instruments creates upside risk to our forecast", Goldman Sachsʼs analysts said.

Emerging markets economists at Barclays said they expect Hungaryʼs headline inflation to push into positive territory, rising to 0.2% year-on-year in May. The main factor is base effects as utility price cuts continue to fall out of the base.

"We expect the MNB to make one final 15bp cut this month, bringing its base rate to 1.5% (...) With inflation on an upward trend, we think this will be sufficient to halt the rate cut cycle, although we do not rule out additional cuts", they added.

London-based analysts at JP Morgan also expect inflation to have turned positive in May after eight months of negative year-on-year rates. Factors include fuel prices which are likely to have jumped 4% month-on-month in response to the increase in crude oil prices and forint weakening.

JP Morganʼs analysts expect the MNBʼs policy rate to trough at 1.50% after a final 15bp cut this month and stay at this level through to December 2016.

Economists at Bank of America-Merrill Lynchʼs London-based research unit (BofA Merrill Lynch Global Research) expect year-on-year headline CPI to have accelerated to 0.1% last month, noting that "inflation is off the lows but still at depressed levels".

"The MNB has clearly signaled its intention to cut rates further, so we do not think the CPI reading will affect much the M%ʼs thinking", they added. Bank of America-Merrill Lynchʼs current forecast calls for the policy rate to fall to 1.35% by end-2015.

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