Disinflation beat analyst expectations again in February

HUNGARY - In Brief 08 Mar 2024 by Istvan Racz

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Headline inflation for February has been reported at 0.7% mom, 3.7% yoy, the latter marginally down from 3.8% in the previous month. Core inflation was only 0.2% mom, 5.1% yoy, the year-on-year rate moving down quite substantially, from the previous 6.1% yoy. Non-fuel inflation also dropped to 4.5% yoy, from 5.4% in the previous month. Note: year-on-year changes in %; Sources: KSH, own estimates This means that the February headline rate turned up at 0.2%-point below the median of analyst expectations, right at the lower end of analysts' range of expectations. Regarding the details, the one-off impact of the January excise tax increase appeared fully in fuel prices (+6.7% mom), but essentially all other items showed signs of continued disinflation, which is especially important in the main repricing period at the outset of the year. This time, disinflation appeared to be impressively broad-based in both of the first two months, weak domestic demand, sharply dropping agricultural producer prices, last year's strong forint, much lower energy costs and reduced inflationary expectations all coming through nicely. One way to know this last one may be by a look at the relatively moderate early-year repricing in private sector services, where the public assessment of inflation prospects normally plays an important role. Could this be enough to convince the MNB to carry out another 100bps reduction of the base rate in March again? Yes, it could if the positive inflation data of the last two months is deemed by the Bank sufficient to scale back worries about the most recent forint weakness, which may be much more of an immediate threat than any (limited) strengthening of consum...