CPI-inflation unexpectedly exploded in January

HUNGARY - In Brief 13 Feb 2020 by Istvan Racz

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CPI-inflation for January was reported at 0.9% mom, 4.7% yoy this morning, the yoy rate up from 4% in December, far above target and also markedly above the top end of the central bank's tolerance range. The MNB's forecast was 4.3% yoy, Portfolio.hu's analyst consensus expected 4.4% yoy, and our forecast was 4.2% yoy. We were all wrong, and the difference between prediction and actual was substantial.Most of the surprise increase came from food (up 2% mom, 6.9% yoy) and fuels (up 2.8% mom, 13.5% yoy). Accordingly, core measures reflected a much smaller increase in yoy rates: core inflation went from 3.9% in December to 4% in January, whereas the MNB's adjusted core inflation measure from 3.5% to 3.7% and non-fuel inflation from 3.9% to 4.1%.An important fact is that the forint was 4.5% weaker against the euro on average in January than a year earlier. We estimate this to have had a potential impact of 0.5-0.6%-point on yoy CPI-inflation.Unsurprisingly, the MNB has immediately sent out vice governor Márton Nagy to say something meaningful. He said the Bank expected 4.6% yoy for January (yes, maybe it did so lately, but the background tables of the December inflation report had 4.3% yoy for the month), and now it expects the headline rate to move down to 4.2% yoy in February and to 3.7% yoy in March. The latter figures also represent a slight revision of the December forecast, up by just one decimal point for both of the next two months.On policy consequences, Mr. Nagy said that:- Inflationary risks have strengthened since the December inflation report. The forint is weaker than expected, but oil prices are also lower and the coronavirus problem has a depressing impact o...