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Hungary’s CPI forecasts in wide range due to uncertain VAT boost

City-based analysts have ranged widely in their forecasts for Hungary's August consumer inflation, owing to the still uncertain inflationary impact of the July VAT hike.

Polled by Econews in London, analysts at seven major City-based investment banks and research institutions - UBS, BNP Paribas, Bank of America-Merrill Lynch, Goldman Sachs, JP Morgan, Wood & Co., 4cast - gave forecasts ranging from 5.3% to 6.1%, averaging at 5.71%.

Hungary's headline CPI was 5.1% year-on-year in July.

BNP Paribas that sees the August headline inflation coming in at 5.3% said that strong disinflationary forces including a massive 10% negative output gap will likely start to kick in from 2010, pushing the headline rate below 2%, and the core inflation below 1%, towards the end of next year.

Bank of America-Merrill Lynch that expects a 5.8% headline rate from last month said it is likely to have been boosted by the “lagged effects” of the indirect tax hikes in July. It's noteworthy, however, that the impact of the VAT hikes on inflation was considerably smaller than expected in July, which - if confirmed in the upcoming CPI releases - would suggest weak pricing power, it added.

Bank of America-Merrill Lynch also expects 1.5%-2.0% year-on-year headline inflation for December next year which, they say, might prompt the central bank to sink its base rate to between 3.50%-5.50% by that time from the present 8.00%. (MTI – Econews)