Hungary inflation seen down at 8-month low in February

March 6, 2018, 5:31 pm  english version Hungarian version  
Hungary’s annual inflation decelerated to 2.0% in February, an eight-month low, from 2.1% in January, analysts polled by Portfolio projected. The Central Statistical Office (KSH) is set to release the February CPI data on Thursday morning. Although the majority believe the headline figure will be rising from now on, some think that no meaningful acceleration in consumer prices is on the cards, at least not this year.

Although the price level is subject to multiple effects early in the year (tax changes, pricing decisions), the stats office reported 2.1% yr/yr inflation for January, the same as for December 2017. This implies that the pricing changes implemented as a response to rising domestic demand were effectively neutralised by the different VAT reductions (fish, Internet and catering services). There are still no signs of any major price pressure, though, as not only the headline figure, but also the 12-m core inflation print remained the same.

Analysts polled by Portfolio expect no CPI deceleration for February, either. Quite the contrary,

according to the median forecast, the KSH on Thursday morning will report 2.0% yr/yr inflation, which would mark an eight-month low in the index.

Péter Virovácz, analyst at ING Bank in Budapest projects 2.0% inflation for February, but he thinks this is merely a temporary slowdown and price pressure in the Hungarian economy will rise again in the coming months. He also emphasises that a faster pass-through of VAT reductions could cause a surprise, i.e. he sees downside risks to his forecast.

Orsolya Nyeste and Gergely Ürmössy, analysts at Erste Bank project a 1.9% headline figure, citing a m/m decrease in fuel prices and the high base.

We think the deceleration will be temporary, and the annual indices will be rising gradually in the following months
, they commented.

Ákos Kuti, analyst at MKB Bank forecasts 2.0% CPI for February, the same as the consensus estimate. He cited the high base - "considering that last year’s peak CPI reading was recorded in February" -, VAT cuts and moderation in German and Eurozone inflation in February. Regardless, he has underlined that the tightening labour market situation and higher wages in Hungary could bring about a sharper rise in the consumer price index in the second half of the year, even though low imported (external) inflation could still keep local processes under pressure.

Gábor Dunai, analyst at OTP has a different view on the matter. Although he also believes that the main factors behind the February CPI deceleration could be temporary factors, such as VAT reductions, he does not expect the headline figure to quickly approach the central bank’s 3.0% target this year. His end-2018 estimate is 2.0%.

Similarly to Dunai, Ágnes Halász, analyst at UniCredit , is also of the view that consumer prices will not rise meaningfully this year; she also projects a 2.0% headline figure for year-end. She added, though, that in view of the data we have for January, risks to the upside have increased. These include labour-intensive activities, and the demand-driven price increase at some home appliances that are imported at mostly unchanged prices.

The million dollar question remains when domestic (wage-specific) and global factors will start to meaningfully fuel Hungary’s inflation. The central bank (MNB) is adamant that in consideration of the above factors we should not be concerned about the potential overheating of the economy therefore maintaining a loose monetary policy is warranted. It seems the central bank is right, for now.

Front page photo by Shutterstock

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