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Nov CPI shows little inflationary pressure, but further rate rises still on cards

Hungary's November CPI shows little inflationary pressure, analysts told MTI, but the central bank could still raise rates because of inflationary expectations and the country's high risk premium.

Consumer prices in Hungary rose 4.2% in November, the Central Statistical Office (KSH) said early on Friday. The rate was in line with expectations and level with the rise in October.

Erste Bank's Zoltán Árokszállási said the data showed no inflationary pressure in the economy. Service prices rose under the headline figure and consumer durable prices hardly increased, failing to reflect worries of National Bank of Hungary rate-setters that businesses would pass on the cost of extraordinary “crisis taxes”. In spite of this, the central bank will probably continue to raise the base rate because its rate-setters have noted that Hungary's risk premium is higher than other countries in the region and inflationary expectations could become stuck at a high level, he added.

The MNB's Monetary Council raised the base rate by 25bp to 5.25% at a meeting on November 29. The rise was the first since the autumn of 2008. They justified the decision citing the high risk premium on Hungarian state debt and the risk of second-round inflation caused by higher food prices and the recently introduced crisis taxes.

Gergely Suppan of TakarékBank said higher food and fuel prices were pushing prices up, but fuel prices will exert downward pressure on the headline figure in the coming year because of the base effect. He said the NBH's inflation prognosis was too pessimistic, adding that average annual inflation was likely to fall from 4.8% in 2010 to 3.3-3.4% in 2011 as year-end CPI drops to the central bank's 3% “price stability” target. (MTI – Econews)