CPI-inflation marginally down in March: no surprise at all

HUNGARY - In Brief 11 Apr 2024 by Istvan Racz

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CPI-inflation for March came out this morning at 0.8% mom, 3.6% yoy, the latter marginally down from last month's 3.7%. This was exactly the same as analysts' median expectation in Portfolio.hu's usual monthly poll. What was driving prices up was unregulated services, household energy and fuels, the rest being largely in line with the MNB's intended disinflationary trend. Economy Minister Nagy quickly put out a communiqué, claiming inflation 'has collapsed'. This reflected an attempt to further dampen inflationary expectations, in our view. The actual situation is bit more complex, though. The good news is that core inflation dropped to 4.4% yoy from the previous month's figure of 5.1% yoy, and similarly, non-fuel inflation fell to 4.1% yoy from 4.5% yoy. The bad news is that analysts expect the downtrend of inflation to end, at least temporarily, with April, the headline number rising again moderately from May. The latter is pretty much the same as the MNB's short-term forecast, the one that formed part of the Q1 inflation report. In that report, the MNB expected 3.7% yoy for March, 3.8% yoy for April, 4.9% yoy for May, and 4.7% yoy for June, where the monthly series of the Bank's short-term forecast actually ends.  Apparently, the MNB now has only limited room for further interest rate cuts, but we think they are most likely to reduce the base rate by 50 bps at each of the next three months' rate-setting meetings, to reach to the 6.5-7% range by June, which they have appeared quite confident about lately. For sure, everything will eventually depend on the momentary EURHUF exchange rate. The current EURHUF level appears to be in line with the prospective base rate pat...