Another excellent CPI-number, but also look behind the curtain

HUNGARY - In Brief 08 Mar 2018 by Istvan Racz

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The year-on-year rate of CPI-inflation fell to 1.9% in February, from 2.1% in the previous month. This was marginally below the 2% market consensus and brought the average headline rate for the first two months to slightly below the 2.1% level, which the MNB expected for the average of CPI-inflation in Q1 2018. Non-fuel inflation dipped to 2.3% yoy from January's 2.4% (which was a five-year high). Core inflation also dropped by 0.1 point to 2.4% yoy, and the MNB's three adjusted core rates fell further to 1.7-2% yoy, from January's 1.7-2.2%.CPI-Inflation and Core Inflation Rates (yoy, %)Sources: KSH, MNBThe reasons for decreasing inflation included a base effect (0.4% mom inflation in February 2016, as opposed to a more normal 0.2% this February), correcting international fuel prices, the weak dollar, in general little imported inflation, and aggressive post-Christmas and end-winter sales efforts by retailers, leading to significant discounts during the month.Of course, all this is truly excellent, but there is a dark side as well. On the latter, may we recommend you to take a look at the following chart:National Accounts Price Indices and Deflators in Q4 2017 (yoy, %)Sources: KSH, own estimatesWell, this is a lowly advertised part of GDP statistics, to say the least. We just used the detailed Q4 figures the were published the other day, to get price indices and deflators for the individual components of the supply of and the demand for GDP. In Q4 2017, average yoy CPI-inflation was 2.3%, and as the reader can judge from the height of the corresponding red column, indeed purchased consumption by households was the segment of the economy which enjoyed the lowest inflati...