Economy 14 February 2012, 9:00am

Hungary inflation leaps to 5.5% in Jan from 4.1% on tax hike, forint (2)

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Hungary’s consumer price index jumped to 5.5% year on year in January 2012 from 4.1% in December 2011, the Central Statistics Office (KSH) has reported on Tuesday. The sharp pickup came about partly on the back of the VAT hike (to 27% from 25%) and the weakening of the forint. The consensus forecast of analysts in a Portfolio.hu poll was for a 5.0% headline figure.

Prices of motor fuels, alcoholic beverages and tobacco as well as food grew at a rate higher than in the previous month while consumers still paid less for consumer durable goods and clothing and footwear, the KSH noted.

At first glimpse it seems that the hike of the standard VAT rate to 27% from 25% gave quite a boost to consumer prices and due to its weakness domestic demand could exert a only a feeble dampening impact. The rate of price increase at food products, alcoholic beverages, tobacco and services was much bigger in January 2012 than in the base period. Clothing prices, however, came lower compared to Dec, as expected. The influence of the weak forint is not really palpable on consumer durable prices that went down 0.2% m/m and 1.5% yr/yr. The rise in fuel prices also had to do with the VAT hike. According to Portfolio.hu’s earlier estimates, the tax increase elevated fuel prices by about HUF 6 per litre. The rise of fuel prices to ever new record highs can be put down to higher crude prices, the excise tax hike and the weak HUF.

Consumer prices went up 5.5% yr/yr from 4.1% in Dec11 and 2.1% m/m from 0.2%.

Because of the VAT hike it is no surprise that along with the headline CPI print core inflation jumped too. In January, core inflation (seasonally adjusted) came in at 1.6% m/m (up from 0.4% in Dec11) and leaped to 4.9% yr/yr from 3.3%. The last time VAT was raised in Hungary was in July 2009 (to 25% from 20%), which boosted core inflation to 5.2% from 3.2%.

The quarterly annualised core inflation indicator went up 1.1ppt to 4.4%.

Monthly changes

In January 2012 compared to the previous month consumer prices increased by 2.1%. In case of food the price rise was 2.8%. Price increase was observed in case of chocolate, cocoa (10.1%), egg (8.1%), edible oil (5.1%), seasonal food items i.e. potatoes, fresh vegetables, fruits (4.9%), salami, sausages, ham (4.4%), coffee at shops (4.3%) and meals at schools (3.5%). Among the main groups the price rise of alcoholic beverages and tobacco was the highest (3.0%).

The price increase of other goods (2.8%) was higher than the average comprising a 5.3% price increase of motor fuels. In case of services the price rise was higher than the average too (2.2%) while prices of postal services grew by 12.4% and refuse disposal by 3.2%. The price rise of electricity, gas and other fuels was under the average (1.0%). Consumers paid 2.7% less for clothing and footwear and 0.2% less for consumer durable goods.

Annual changes

In January 2012 compared to January 2011 food prices grew by 5.5% at the same rate as the average. In this category a substantial price increase was observed in case of sugar (36.3%), margarine (28.6%), pork fat (23.8%), egg (19.5%), chocolate, cocoa (18.5%), coffee at shops (17.5%), pork (12.2%) and beef (11.6%). Price decrease was observed in case of seasonal food items (14.8%).

The price rise of other goods (8.5%) was higher than the average comprising a 18.0% price increase of motor fuels and 5.3% of pharmaceutical products. In case of electricity, gas and other fuels the price rise was higher than the average too (6.4%) while prices of purchased heat rose by 11.7%, butane and propane gas by 9.2%, natural gas by 5.7%. The price rise of alcoholic beverages and tobacco was higher than the average too (6.7%). In case of services above-average price increase was observed (4.6%) while prices of sewerage disposal increased by 7.5% and refuse disposal by 6.7%. Consumers paid 2.8% more for clothing and footwear than a year ago. In case of consumer durable goods consumers paid 1.5% less for it than in the corresponding month of the previous year.

In the 27 member states of the EU according to provisional harmonized data the annual inflation was 3.0% in December 2011 compared to December 2010. The lowest annual rates were observed in Sweden (0.4%) and Malta (1.3%) and the highest in Slovakia (4.6%) and Poland (4.5%).