CPI-inflation, core inflation jump on tourism services and food in July

HUNGARY - In Brief 08 Aug 2017 by Istvan Racz

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The July CPI data, released this morning, looks quite bad to be honest. It is not primarily the 0.0% mom, 2.1% yoy (up from June's 1.9% yoy) headline rate that is worrying, as this data was fully in line with analyst expectation (and just slightly higher than our own forecast). It is more the composition of the headline rate that is the problem. Core inflation, as calculated by the KSH, jumped to 0.4% mom, 2.6%yoy, the latter up from 2.4% yoy in June. The MNB's three adjusted core inflation indicators were reported in the 1.7-2.3% mom range for July, after 1.7-2.2% mom in June. Finally, non-fuel inflation climbed to 2.3% yoy in July from 2.2% yoy in June, against our expectation of just 2.1% yoy, as we thought the strong forint could contain the rise of domestic prices at least temporarily. In fact, the only reason why the headline rate did not come out even higher was a 1.5% mom drop by fuel prices, which was indeed an impact of the forint's sharp appreciation against the USD lately.The main driver of non-fuel inflation was a 0.9% mom rise by services in July, about two-thirds of which came from domestic and foreign travel (up 5.9% mom) and long-distance transportation (up 7.6% mom). The latter normally takes place in the vacation season, but is normally suppressed by a significant, and also seasonal, drop by food prices. This year, tourism prices rose largely as fast as last year in July, but food prices fell only by 0.2% mom, against a 0.4% drop in the same month of 2016. Well, yes, 2016 was a good agricultural year and the current year is a bad one, not just for Hungary but internationally as well.CPI-Inflation Broken Down to Fuel Prices and Non-Fuel Inflation (yoy...