Economy
INSTANT VIEW - Hungary consumer prices jump in January on VAT hike, forint easing (3)
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(Adds comment by Erste, Citi)
Hungary’s consumer price index leaped to 5.5% yr/yr in January, up from 4.1% yr/yr in December 2011 as the VAT hike (to 27% from 25%) kicked in. The consensus forecast of analysts in a Portfolio.hu poll was for a 5.0% headline figure. Core CPI stood at 4.9% yr/yr vs. 3.3% yr/yr in the preceding month.Gábor Ambrus, 4Cast, Sofia
“CPI ex tax changes stood at 3.6% y/y, on a 1.0% m/m rise; we note however that this index is somewhat misleading as it is based on the assumption of immediate and full transfer of VAT hikes to consumer prices and as such is likely a biased indicator."
“Given the manifold impact of the VAT hike, further pass through from last year’s excise tax increase and an 18% rise in minimum wages which is partly offset by government transfers, a quick glance at the CPI breakdown could be misleading and certainly the current CPI print should be evaluated in the broader context of economic and labour market trends."
“Accordingly, the MPC is unlikely to jump into any early conclusion from the CPI figures, especially as the real binding constraint of policy making is risk appetite rather than the inflation outlook itself."
“With this caveat in mind, we see the upside surprise coming from a little stronger than expected rise in processed food prices, a further pass through from last November’s excise tax increases, while a 0.1% m/m decline in durable good prices was a pleasant surprise."
“The prices of market services (non regulated services increased by a hefty 1.8% m/m) as both the minimum wage hike and the VAT hike mattered but this time we doubt this increase would signal an adverse change in inflation expectations."
“Overall, and again we note that at a quick glance, there is no single item that seems to be responsible for the fact CPI came in higher than expected; what most likely has happened is that market had underestimated the pass through of the VAT increase to consumer prices."
“Obviously, an alternative explanation would be a broad based increase of price pressures but given the state of the economy and the labour market we are sceptical about this possibility. No doubt however, the current figure will lead to upside revisions to the 2012 CPI forecasts but this does not mean that the CPI projections on the monetary policy horizon would be affected. We still see rates on hold for an extended period."
Orsolya Nyeste/Zoltán Árokszállási, Erste, Budapest
“The main drivers of the significant monthly increase in January were food (2.8%), fuel (5.3%), alcohol and tobacco prices (3%) and services prices (2.2%). These categories have all showed the price increasing effects of tax changes (VAT was raised from 25% to 27% from January) and a weaker forint. At first glance, it seems that the difference between the actual figure and forecasts can be explained by the underestimation of the pass through effect of higher taxation. The 12-month core inflation jumped to 4.9% y/y."
“As for the outlook, the coming 1-2 months should bring relatively high monthly indexes, as price changes in the category of household energy have not totally been accounted for yet. Favourable base effect should help towards the end of the year."
“Today’s reading did not change our assessment on the interest rate outlook. We do not expect any pick-up in consumption this year, contribution of domestic demand to GDP will remain weak. Moreover, despite high inflation figures expected for this year, the 3% y/y inflation goal still seems reachable on the time horizon of the monetary policy. Thus, changes in risk assessment would affect the monetary policy of the central bank. We expect the CB to keep the base rate on hold (7%) at the upcoming monetary meeting (to be held on February 28)."
Eszter Gárgyán, Citi, Budapest
“The impact of VAT and excise duty hikes has added 1.8% to the headline price index and also contributed to core inflation acceleration. Energy prices continued to soar on currency weakening and excise duty hike on gasoline prices adding to headline CPI."
“From a monetary policy point of view the rise in constant-tax CPI from 3.3% YoY in December to 3.6% in January is a warning sign in our view, especially that market services have shown marked acceleration. However, it is too early to identify a rise in the core price trend as the January reading partly compensated for the softer than expected outcome from December. Nonetheless, the impact of minimum wage hikes and required wage compensation to offset low-wage earners for tax changes poses a risk to cost-push inflation in the service sector, in our view."
“The impact of weak consumer demand is visible in durable goods prices that are less impacted by wage costs and have remained flat in January in spite of the 2 percentage point VAT hike. The continued drop in consumer confidence suggests that price acceleration may be muted by weak domestic demand albeit our view is that cost-push inflation factors may offset the impact of weak domestic demand."
“We believe the January upside surprise in CPI partly compensates the weaker than expected reading in December, therefore it may be too early to assess the acceleration in core price trends. Therefore, we expect that monetary policy statements will reconfirm the MPC’s readiness to hike rates further if inflation trends continue to accelerate, but risk premiums are likely to remain the key inputs to rate decisions in the short term."
"Given the upside risks to inflation and our expectations of prolonged talks with the IMF we expect rates to remain on hold until 4Q12. We believe the prospect of the interest rate path will likely be driven by external factors thereafter and project gradual rate cuts to start late-2012 if the global environment remains supportive."
Hungary’s consumer price index leaped to 5.5% yr/yr in January, up from 4.1% yr/yr in December 2011 as the VAT hike (to 27% from 25%) kicked in. The consensus forecast of analysts in a Portfolio.hu poll was for a 5.0% headline figure. Core CPI stood at 4.9% yr/yr vs. 3.3% yr/yr in the preceding month.Gábor Ambrus, 4Cast, Sofia
“CPI ex tax changes stood at 3.6% y/y, on a 1.0% m/m rise; we note however that this index is somewhat misleading as it is based on the assumption of immediate and full transfer of VAT hikes to consumer prices and as such is likely a biased indicator."
“Given the manifold impact of the VAT hike, further pass through from last year’s excise tax increase and an 18% rise in minimum wages which is partly offset by government transfers, a quick glance at the CPI breakdown could be misleading and certainly the current CPI print should be evaluated in the broader context of economic and labour market trends."
“Accordingly, the MPC is unlikely to jump into any early conclusion from the CPI figures, especially as the real binding constraint of policy making is risk appetite rather than the inflation outlook itself."
“With this caveat in mind, we see the upside surprise coming from a little stronger than expected rise in processed food prices, a further pass through from last November’s excise tax increases, while a 0.1% m/m decline in durable good prices was a pleasant surprise."
“The prices of market services (non regulated services increased by a hefty 1.8% m/m) as both the minimum wage hike and the VAT hike mattered but this time we doubt this increase would signal an adverse change in inflation expectations."
“Overall, and again we note that at a quick glance, there is no single item that seems to be responsible for the fact CPI came in higher than expected; what most likely has happened is that market had underestimated the pass through of the VAT increase to consumer prices."
“Obviously, an alternative explanation would be a broad based increase of price pressures but given the state of the economy and the labour market we are sceptical about this possibility. No doubt however, the current figure will lead to upside revisions to the 2012 CPI forecasts but this does not mean that the CPI projections on the monetary policy horizon would be affected. We still see rates on hold for an extended period."
Orsolya Nyeste/Zoltán Árokszállási, Erste, Budapest
“The main drivers of the significant monthly increase in January were food (2.8%), fuel (5.3%), alcohol and tobacco prices (3%) and services prices (2.2%). These categories have all showed the price increasing effects of tax changes (VAT was raised from 25% to 27% from January) and a weaker forint. At first glance, it seems that the difference between the actual figure and forecasts can be explained by the underestimation of the pass through effect of higher taxation. The 12-month core inflation jumped to 4.9% y/y."
“As for the outlook, the coming 1-2 months should bring relatively high monthly indexes, as price changes in the category of household energy have not totally been accounted for yet. Favourable base effect should help towards the end of the year."
“Today’s reading did not change our assessment on the interest rate outlook. We do not expect any pick-up in consumption this year, contribution of domestic demand to GDP will remain weak. Moreover, despite high inflation figures expected for this year, the 3% y/y inflation goal still seems reachable on the time horizon of the monetary policy. Thus, changes in risk assessment would affect the monetary policy of the central bank. We expect the CB to keep the base rate on hold (7%) at the upcoming monetary meeting (to be held on February 28)."
Eszter Gárgyán, Citi, Budapest
“The impact of VAT and excise duty hikes has added 1.8% to the headline price index and also contributed to core inflation acceleration. Energy prices continued to soar on currency weakening and excise duty hike on gasoline prices adding to headline CPI."
“From a monetary policy point of view the rise in constant-tax CPI from 3.3% YoY in December to 3.6% in January is a warning sign in our view, especially that market services have shown marked acceleration. However, it is too early to identify a rise in the core price trend as the January reading partly compensated for the softer than expected outcome from December. Nonetheless, the impact of minimum wage hikes and required wage compensation to offset low-wage earners for tax changes poses a risk to cost-push inflation in the service sector, in our view."
“The impact of weak consumer demand is visible in durable goods prices that are less impacted by wage costs and have remained flat in January in spite of the 2 percentage point VAT hike. The continued drop in consumer confidence suggests that price acceleration may be muted by weak domestic demand albeit our view is that cost-push inflation factors may offset the impact of weak domestic demand."
“We believe the January upside surprise in CPI partly compensates the weaker than expected reading in December, therefore it may be too early to assess the acceleration in core price trends. Therefore, we expect that monetary policy statements will reconfirm the MPC’s readiness to hike rates further if inflation trends continue to accelerate, but risk premiums are likely to remain the key inputs to rate decisions in the short term."
"Given the upside risks to inflation and our expectations of prolonged talks with the IMF we expect rates to remain on hold until 4Q12. We believe the prospect of the interest rate path will likely be driven by external factors thereafter and project gradual rate cuts to start late-2012 if the global environment remains supportive."
