Are you sure?

City sees Hungary CPI down to around 3% target on base effects

Hungary's year-on-year headline inflation may have edged down to around, or even south of, the 3% target in May, largely on the back of positive base effects, London-based emerging markets analysts say.

Polled by Econews in London, analysts at seven major City-based investment banks and research institutions - 4cast, Citi, HSBC, Bank of America-Merrill Lynch, JP Morgan, Goldman Sachs, Barclays Capital - ranged narrowly in their forecasts, from 2.8% to 3.1%, averaging at 3.01%.

At the bottom end of the range with a forecast of 2.8%, Bank of America-Merrill Lynch said it expects headline consumer inflation to have declined below the MNB's 3% target driven by underlying disinflation and favorable base effects, with an even sharper decline being prevented by a rise in commodity prices.

It also said, however, that the inflation downtrend “has been halted recently” by regulated price hikes and is likely to be distorted further by the VAT hike that may result in a spike in headline CPI to around 6.5% year-on-year in the second half of the year.

Goldman Sachs said it expects inflation to have fallen to 3.1% after the April spike to 3.4%. Headline inflation should remain around the 3% target until July, when the VAT hike will send it higher towards 7% by year-end, it added.

Both Bank of America-Merrill Lynch and JP Morgan expect the National Bank of Hungary to cut the Hungarian base rate to 7.50% by year-end from 9.50% at present while Barclays Capital forecasts a 25bp rate cut in July and an 8% base rate, which is to prevail in Q1 2010, by the end of this year. (MTI – Econews)