CPI-inflation down in July, convenient for the MNB

HUNGARY - In Brief 08 Aug 2019 by Istvan Racz

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The headline CPI-inflation rate for July has been reported at 3.3% yoy this morning, just slightly down from 3.4% yoy in the previous month. Analysts, including us, expected no change at all. To a great extent, the little positive surprise came from the fact that fuel prices fell by 0.2% mom in July, despite a 0.6% mom increase in fuel wholesale prices, the latter of which had been made available earlier. Non-fuel inflation remained unchanged at 3.9% yoy, actually at the same level for the third consecutive month already.Well, so far this was not that awesome data at all. However, the good news is that all officially estimated core inflation indicators fell in July. Most importantly, core inflation adjusted for indirect taxes, the MNB's primary policy indicator, dropped 3.2% yoy from June's 3.5% yoy. This looks quite a significant positive change. A great part of the explanation is that headline inflation was pushed up by a further (actually the last) stage of a program to raise excise taxes on tobacco products, which was made necessary by common EU policy. The impact of this measure fell out of the adjusted index, of course.The resulting situation must be regarded as very convenient for the MNB, as it looks even somewhat better than their most recent short-term inflation forecast. Consequently, no further tightening action is likely in the forthcoming few month, in addition to the Bank aiming to implement its plan to reduce non-sterilised liquidity in the banking sector, gradually and in relatively small steps. Of course, the latter is likely to have only very limited impact on short-end BUBOR, whereas having essentially no impact at all on BUBOR longer than three mon...