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Hungary CPI to pick up before plunging below target, says City

Hungary's consumer inflation is set to gain further momentum before starting to nosedive below the 3% target later this year, London-based emerging markets analysts said prior to the release of the December CPI figures, due on Thursday.

The broader City consensus for the December year-on-year headline inflation is 5.7% after a higher-than-expected November reading of 5.2%.

In one of the early forecasts in the City, Barclays Capital said it expects a 5.5% inflation rate from last month.

“We expect (year-on-year) headline inflation to peak in February, to decline gradually until mid-2010 and fall sharply in (the second half of the year) to 2.5% by end-2010”, its analysts added.

On the monetary outlook, Barclays Capital said that the MNB, having cut its base rate by only 25bp in December, is now likely to maintain the 25bp steps in its further rate cuts. However, as long as fiscal policy remains on track after “the April/May elections when a Fidesz government is likely to take over”, and if market sentiment remains supportive – “developments in Greece and the Baltics will play a role here” -, rate cuts should continue, with the policy rate likely to bottom out at 5% this year, Barclays Capital said.

JP Morgan said that CPI inflation likely climbed to 5.7% in December, driven by a large base effect in fuel prices, a larger-than-seasonal rise in food prices and a hike in electricity prices at the start of November. However, inflation “is still on track” to undershoot the 3% target in the second half of this year, although a further rise in oil prices “would make this less likely”, JP Morgan's London-based investment analysts added.

JP Morgan sees the central bank's policy rate fall to 5.5% by March, and then remains flat for as long as the next two years.

Goldman Sachs said over the weekend that it expects a 5.6% year-on-year headline CPI reading from December. GS also forecasts Hungary's inflation rate to drop below the 3% target in the second half of this year. (MTI-Econews)