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April CPI disappointing, but disinflation set to continue

It was to be expected that the forint's earlier weakening would affect April consumer prices, and though the scale of the pick-up in CPI was disappointing, disinflation is very likely to continue in the next quarter, London-based emerging market analysts told MTI.

Consumer price inflation in Hungary reached 3.4% in April, picking up from 2.9% in March, the Central Statistical Office (KSH) said in the morning. London analysts had put April CPI between 2.7% and 3.4%, with a consensus of 2.94%.

Tatha Ghose of Commerzbank-Dresdner Kleinwort said disinflation was the trend for the region, but some economies were moving, albeit moderately, in the other direction because of exchange rate weakening and increased centrally-regulated prices. The weaker forint can still be felt in vehicle fuel imports, he added, noting that core inflation was more or less stable between March and April.

A planned VAT increase to come into effect from July will push prices up, although a rise in centrally-regulated gas prices made in April of last year will no longer have a base period effect in May, Ghose said.

Commerzbank-Dresdner Kleinwort expects the economic contraction to slowly start to offset the effects of the weaker forint and one-off rises in centrally-regulated prices, thus the disinflationary trend could continue.

Melanie Bowler of Moody's Economy.com said the weaker forint resulted in imported inflation in April. In spite of the weaker forint, Moody's sees the National Bank of Hungary gradually reducing its base rate from 9.50% to 7.00% by year-end. (MTI – Econews)