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City: Hungary October CPI down on credit crunch, base effects

  Hungary’s consumer inflation in October is likely to have edged further down towards 5% yr/yr from an already much softer-than-expected 5.7% reading the previous month on the back of the credit crunch and a host of positive base effects, London-based emerging markets analysts said ahead of Tuesday’s data release.


Polled by Econews in London, analysts at nine City-based investment banks and data monitors - Merrill Lynch, Goldman Sachs, BNP Paribas, JP Morgan, Barclays Capital, Deutsche Bank, UBS, 4cast, Dresdner Kleinwort - ranged from 5.1% to 5.5% in their forecasts, averaging at 5.3%.

Giving a 5.3% forecast for last month, JP Morgan said that inflation likely continued to fall at a steady pace on large base effects in food and fuel. “We see year-end inflation at just below 5%, falling to 3.5% by end-2009”.

Merrill Lynch also said that Hungary’s CPI inflation is likely to have continued its descent in October, falling to 5.3% year-on-year, driven by a combination of underlying disinflation, plunging commodity prices and favourable base effects.

Goldman Sachs said that “conflicting forces were acting” on inflation in October: the credit crunch probably kept prices in check, while the weaker HUF acted in the opposite direction. On balance, the favorable base effect should help bring the headline down, but this will depend on the speed of the pass-through from the weaker currency to the price level.

“Our baseline is that the FX spike was too recent to have a major impact on prices, but this is still uncertain”. In the longer run, “we expect inflation to drop below 4% in the second half of next year ... we think that this, together with a gradual normalization of the risk premium, will open the way for rate cuts in 2009”, GS said. (MTI-Eco)