A painful surprise in the June CPI-inflation data

HUNGARY - In Brief 08 Jul 2021 by Istvan Racz

---

This was exactly the way Portfolio.hu characterised this morning's data release by KSH, and it was wholly correct. The yoy headline rate went further up to 5.3% yoy in June, from May's 5.1%. Analysts expected this rate to fall to 4.9% (median expectation), and we were essentially part of the crowd with our own forecast of 5% yoy. The MNB also predicted 4.9% yoy for June, as shown by the supporting tables of their Q2 inflation report, published only a fortnight ago.Worse than this, rising inflation cannot be blamed on fuel prices this time, as the latter fell by 0.3% in June, reducing their yoy rise to 24.2% from the nearly record rate of 36.2% measured a month ago. Consequently, the monthly pace of non-fuel inflation reached 0.7%, higher than the 0.6% monthly headline rate, and so yoy non-fuel inflation rose very sharply, by a full percentage point from May, to 4.2%. Core inflation (both KSH and MNB) also rose, to 3.8% yoy from last month's 3.4% yoy figure.The forint was not the explanation this time either, as EURHUF rose by only 0.6% yoy in June, after +0.9% yoy in May, both being rather low values. What really pushed inflation was a 2% monthly pick-up by the prices of services, which represent 26% in KSH's consumer basket. To be fair, a major one-off item played a crucial role here, as mandatory free parking at government-owned parking lots under Covid was discontinued, and this caused about half of the rise in the services category, adding about 0.25%-point to the overall headline rate in June. The rest of service prices was affected mainly by the thrust of reopening, which is typically leading to rising prices, as we pointed out in yesterday's note already.Our own...