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Hungary: Inflation slowly falling - update

While the gas price hike is still in effect, the strong forint and falling oil prices can slightly tone down the growth rate of inflation.

The Central Statistics Office (KSH) will publish July CPI on Tuesday. The analysts see twelve-month CPI slowing to 5.6% by December and put average annual inflation around 5%. They said the firmer forint will contribute to the slowdown in inflation because of its effect on consumer durable prices, though the timing is uncertain, as retailers may be reluctant to cut the price of stocks purchased when the forint was weaker. Prices of summer clothing and seasonal food will also support the disinflationary trend.

The government is expected to raise retail gas prices further in in October after a hike in July, which will show up in gas bills in August and November. The gas price increase will also raise district heating prices, the analysts said. These increases will keep CPI high and make it unlikely Hungary will meet its 3% inflation target in 2009.

The analysts agreed the National Bank of Hungary has reached the end of its tightening cycle, and this is likely to be born out in the central bank’s fresh quarterly Inflation Report, to be published on August 25. Rate cuts, however, will probably not start until 2009, they said. (Napi Gazdaság)