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Hungary inflation unlikely to drop to 3%

Hungary is unlikely to drop to the 3% central bank-government midterm target in the course of 2010, analyst said after the Central Statistics Office reported on Tuesday morning that CPI had picked up to 5.9% in March after slowing to 5.7% in February.

The monthly price increase was 0.7%, up from 0.3% in February.

Gergely Suppán of Takarékbank said that the rate of inflation has not conformed to expectation in any month since the beginning of the year and the midterm target will not be achieved this year.

Suppán attributed Hungary's higher-than-expected March inflation to an increase in the price of seasonal food and clothing, adding that the rise in the price of the latter was peculiar in light of the fact that demand for clothing has decreased as a result of the economic crisis. The rise in fuel prices added 0.2-percentage points to inflation but this had been expected, he said.

The Takarékbank analyst predicted that inflation would begin to decline only next year, noting that the inflation-generating effects of the rise in Hungary's VAT and excise tax will end in July, while forint weakening is unlikely to represent an inflation risk this year.

Zoltán Árokszállási of Erste Befektetési noted that March inflation was only slightly higher than the investment company's projected 5.8%, suggesting that there is not significant inflationary pressure weighing on Hungary. Árokszállási said that inflation is thus unlikely to exercise an influence on the monetary policy of the National Bank of Hungary (NBH).

The Erste macroeconomic analyst predicted that Hungary's average inflation rate would be 4.4% this year, and the twelve-month CPI would decline to 3.6% yr/yr in December.

Zoltán Árokszállási said that the inflationary risks associated with the price of oil and gas make it unlikely that inflation would drop below the mid-term target.

The Finance Ministry raised its forecast for 2010 average inflation from 4.1% to 4.3%. In its latest Inflation Report published in February, the National Bank of Hungary predicted 2010 average inflation of 4.4% and said it expected inflation to drop below the 3% midterm target only in Q1 next year instead of Q3 this year. (MTI-ECONEWS)