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Higher-than-expected April inflation due to seasonal factors, analysts expect slowdown

Hungary's higher-than-expected inflation in April was due primarily to seasonal factors, such as the rise in the price of food and clothing, analysts and told MTI on Wednesday. They predicted that the inflation rate would begin to decline beginning in May.

The Central Statistical Office reported on Wednesday morning that consumer prices rose 4.7% yr/yr in Hungary last month, up from 4.5% year-on-year (yr/yr) in March and slightly higher than the consensus analyst-forecast of 4.6%. Seasonally adjusted core inflation, which excludes fuel and food prices, slowed to 0.3% last month from 0.8% in March, though rose in a twelve-month comparison to 2.7% in April from 2.5% the previous month.

Zoltán Árokszállási of Erste Bank commented that April inflation data should have no impact on the National Bank of Hungary's monetary policy, adding that the central bank is likely to keep its base rate on hold at 6% over the coming months.

Árokszállási remarked that the lower-than-expected rise in April service sector prices is a good sign with regard to the future course of inflation.

Gergely Suppan of Takarékbank remarked that external price shocks were the primary cause of Hungary's higher-than-expected April inflation, not domestic demand- and wage pressure.

Suppan noted that it is difficult to predict food prices, although he did not expect the sharp rise in the second half of last year to repeat. The price of fruit and vegetables could even fall from May if Hungary's harvest is better than last year's, hit by floods, he said. The strong forint and a drop of fuel prices could also help to moderate inflation over the long term.

The Erste Bank analyst predicted that Hungary's CPI will fall to the vicinity of 4% by the end of 2011, while average annual inflation will be between 4.2% and 4.3% this year. He said that consumer prices would likely decrease gradually over the next year to year and a half, and would reach the central bank's 3% midterm target by the end of 2012. The Takarékbank analyst said inflation could have peaked in April.