At last, (relatively) good inflation data came out for October

HUNGARY - In Brief 09 Nov 2017 by Istvan Racz

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CPI-inflation was 0.3% mom, 2.2% yoy in October, the latter down from 2.5% in the previous month. Core inflation was 0.3% mom, 2.7% yoy, the latter also down from 2.9% in September. Non-fuel inflation reached 0.3% mom and an unchanged 2.4% yoy, whereas all three of the MNB's adjusted core inflation indices reflected year-on-year decrease in October, to 1.8-2.3% from a range of 2-2.6% in the previous month.Importantly, all the yoy decline of inflation in October had to do with a base effect, given an outstanding 0.6% yoy uptick in October 2016. Consequently, the drop of yoy inflation rates last month was no surprise at all. Analysts expected 2.3% yoy for the headline rate, and maybe the only surprising element was the zero change of fuel prices, as reported by the KSH for the month, as opposed to the 0.8% rise of the average wholesale prices of gasoline, as could be calculated from MOL's occasional announcements made earlier. As a result, no sharp reactions to the data should be expected, an in fact, none has been happening so far today.However, the monthly data may seem to be perfect from where the MNB is looking at it. The Bank will likely see this as a vindication of their recent analysis that headline inflation is likely to fall from its previous close-to-target level in short term, before slowly rising to 3% no earlier than in Q2 2019. In turn, the market is likely to see this data as one making the MNB more comfortable about the ongoing slow erosion of forint strength vis-a-vis the euro, particularly as base effects in inflation statistics will remain MNB-friendly until February, so the inflation target seems to be safe for that period. (Longer term will likely be...