Continued bad news on inflation and the budget

HUNGARY - In Brief 10 May 2022 by Istvan Racz

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Yesterday, we had some good news on growth (industry, exports, retail sales) and some bad news on equilibrium (trade balance). This morning, further bad news is to be reported on equilibrium, obviously the problem area in these days.First, CPI-inflation was 1.6% mom, 9.5% yoy in April, the latter climbing sharply further up from 8.5% yoy in March, maintaining the steeply upward trend held since last August. The key driver was food (one quarter of the CPI basket, 3.4% mom, 15.6% yoy). This is most of all about energy, which is more than half of all costs in agriculture and food manufacturing (transportation, heating/freezing/drying, etc.), and also the impact of global commodity prices. For enterprises, no administrative price controls on energy apply, unlike for households. Core inflation was even higher (1.8% mom, 10.3% yoy), as the headline rate is beneficially contained by household energy and fuels (price controls) as well as tobacco and beverages.These figures are bad but unsurprising. The government, based on advice from the MNB, currently expects 8.9% average CPI-inflation for 2022, and it has decided already that old-age pensioners will get compensation up to that level. The MNB/government know very well that the upside risk is substantial, and they predict the headline rate to turn double-digit in the forthcoming months, before retreating somewhat late in the year. Private sector analysts seem to be in agreement with that view. The MNB can do little more than what it has promised: maintaining the existing stream of regular monthly base rate increases, following the rise of headline CPI, and raise the sterilisation rate by more on a weekly basis if EURHUF goes ...