CPI-inflation in December: A big drop by the headline rate and a small increase in core rates

HUNGARY - In Brief 12 Jan 2018 by Istvan Racz

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Headline CPI-inflation came out at 0% mom, 2.1% yoy in December, the yoy rate down from 2.5% yoy in the previous month. The actual was just 0.1 percentage point below consensus, which we shared, due to a minor surprise presented by fuel prices, which fell by 1.2% mom at the retail level, despite only 0.4% decrease by wholesale prices.CPI-Inflation Broken Down to Fuel and Non-Fuel Items (yoy changes in %)Data from 2018 represents own forecastsSources: KSH, own estimates and forecastMore importantly, the yoy rate of fuel price inflation fell from 5.9% to 0.5% in December, whereas non-fuel inflation (0.1% mom, bang on market expectation) rose slightly, to 2.4% yoy in December from 2.3% in November. Similarly, the yoy rate of core inflation rose to 2.7% from 2.6%, and the MNB's three adjusted core rates also rose marginally, to 1.8-2.2% from the previous month's 1.7-2.2%.Residential Housing Prices (average of 2010 = 100)Source: KSHFrom the MNB's point of view, this is excellent data, as the average headline rate for Q4 came out as 2.3%, one decimal point less than the Bank's forecast in its September inflation report. But even so, the December data should not be seen as if everything were in order around domestic price stability. Regarding the sticking problems, please see the two graphs we are presenting here. The first one shows that residential housing prices rose by 9.9% yoy for existing apartments and by 15.8% yoy for new apartments in Q3. The second shows that producer price inflation is higher or much higher than CPI-inflation in almost all sectors and in foreign trade, the only exception being services.Producer Price Inflation By Various Sectors (yoy changes in %)S...