Core inflation rose further in May

HUNGARY - In Brief 08 Jun 2017 by Istvan Racz

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CPI-inflation was 0.2% mom, 2.1% yoy in May. Although the yoy headline rate fell slightly, from 2.2% in April, this means no good news for the MNB (even though not very negative either). In fact, the various measures of yoy core inflation moved further up slightly, to 1.6-2.1% in May, from 1.5-1.9% in April. Our favorite core inflation index, non-fuel inflation rose to 1.9% yoy in May from 1.6% in April, the impact of which on the headline rate was masked by the fact that fuel prices fell by 2.9% mom, and yoy fuel price inflation fell to 4.7% in May, from 10.7% in the previous month. CPI-Inflation Broken Down to Fuels and Non-Fuels (yoy data in %) Note: Data between June 2017 - December 2018 represents own forecastSources: KSH, own estimates and forecastGiven the most recent, skyrocketing rate of wage growth and the less extreme, but still robust expansion of retail sales, the continuation of the slow but almost uninterrupted climb of yoy non-fuel inflation since the 0.7% local trough reached in June 2016 is no great surprise. The 0.3% point jump recorded in May represents some acceleration compared to the recent trend, but this may be explained by weather-related volatility in food prices, which rose by 1% mom in May. The important thing seems to be that non-fuel inflation keeps rising slightly faster than expected. Against that picture, the MNB is increasingly likely to allow a relatively strong forint (in EURHUF terms) between now and end-2017, just as we indicated in yesterday's note, issued on recent output growth data.