CPI-inflation fell in March by less than expected, core inflation continued to rise

HUNGARY - In Brief 08 Apr 2020 by Istvan Racz

---

It was widely expected by analysts that the headline rate of CPI-inflation would fall sharply in March, due to collapsing fuel prices. The consensus expectation (Portfolio.hu) was 3.7% yoy, down from 4.4% yoy in February. However, the actual number was 3.9% yoy, as a result of a 0.2% rise of consumer prices during the month.The difference between expected and actual is well explained by the fact that the sharp 10.1% mom drop seen in MOL's fuel prices, on average during March (as calculated from the holtankoljak.hu website), did not go fully through to KSH's average fuel prices, which were down by only 5.3% mom.CPI-inflation and core inflationNote: Year-on-year changes in percent; Source: KSHPerhaps more importantly, core inflation by its various measures continued to rise in March: KSH's basic core inflation to 4.3% yoy in March from 4.1% in February, adjusted core inflation to 3.9% yoy from 3.8% yoy, and finally non-fuel inflation to 4.4% yoy from 4.2% yoy. And this happened in a month when there was a panic rush at supermarkets at the start of the month and then another one after March 12 when old-age pensions were paid out, but the rest of the month was remarkably silent and in the second half essentially all retail units except for food stores, drugstores and pharmacies were closed. The MNB has blamed rising core inflation on certain processed food items and market-based services. In our view, they are certainly right, but one factor is missing from their list, and that is the EURHUF exchange rate. In March, the euro was 9.3% stronger against the forint than a year earlier, following 6.1% yoy rise in February. We believe that March's 0.6% mom non-fuel CPI-inflation...