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March CPI higher than expected - analysts

Consumer price inflation in Hungary in March was higher than expected, and the presence of higher food prices in processed food prices was especially worrying, analysts told MTI on Tuesday.

CPI accelerated to 4.5% year-on-year in March from 4.1% in February, the Central Statistical Office (KSH) said early Tuesday. The index rose on steep increases of food, energy and fuel prices.

TakarékBank's Gergely Suppan attributed the bigger-than-expected rise in prices to food prices. A passthrough to processed food prices could also be seen, which lifted core inflation, he added.

In a month-on-month comparison, household energy prices climbed 1.5%, with electricity prices up 4%, he said. Vehicle fuel prices increased 3.4%, which was not a surprise, he added.

In the coming months, the stronger forint could show up in prices, causing consumer durables and some service prices to edge down, but vehicle fuel prices are set to rise further, Suppan said. Still weak domestic demand could dampen the rise in processed food prices, he added.

Suppan put year-on-year CPI at 4.3-4.5% in the coming months and projected average annual inflation of 4%. Next year, because of the strong forint, the base effect and a slow pickup in domestic demand, average annual inflation could be slightly over 3%, reaching the National Bank of Hungary's “price stability” target of 3% in the second half of the year, he said.

CIB Bank chief analyst György Barta also noted that unprocessed food prices had shown up in processed food prices in March. The rise in core inflation was worrying as it shows external price shocks have already started to be built in to consumer prices.

Barta put average annual inflation at 4.4% in 2011 and at 3% in 2012. The central bank base rate is likely to remain at 6.00% for the rest of the year but a cut could come later if the forint continues to firm, he added. He played down the chance of a tightening cycle because of the weak domestic demand, but said that if upward risk shows up in CPI in the coming months, the central bank would have to act.