CPI-inflation in November: would no negative surprise be a surprise now?

HUNGARY - In Brief 08 Dec 2022 by Istvan Racz

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Monthly CPI-inflation data have kept surprising analysts on the negative side lately. And so it happened in November as well. The yoy headline rate rose to 22.5% from the 21.1% reported in October, whereas analysts expected only 22%. Once again, the main driver was food, where prices rose by an average 43.8% yoy, up from exactly 40% yoy in October. Food is particularly important because of its high share, around a quarter of the whole consumer basket. A bit of relatively good news was the 1.8% monthly increase by the CPI, which was the lowest over the last five months. Food prices were sticking out in this regard as well, rising by 3.8% in November alone. Household energy rose by 1.3% mom on average, due to unsubsidised forms of heating, mainly coal and firewood, becoming more expensive. Going forward, we expect now 25.3% yoy headline inflation for December, and 26.1% yoy for January, rising further in these two months on account of the removal of subsidised fuel prices just two days ago.  Calling the peak of the inflation cycle would be a bit difficult at this point, but it is worth noting that base effects will become substantially more friendly from January. In Q4 2021, the monthly average inflation rate was only 0.7%, which rose then to 1.2% in Q1 this year, 1.6% in Q2 and 2.7% in Q3. On this basis, there seems to be a fair chance that the peak of the inflation cycle could be reached in Q2 2023, but in Q3, it seems much more likely than not from where we are standing currently. Given the latest news on fuel and food prices, reaching the peak of the cycle in Q1 2023 does not seem to be likely anymore.