February inflation and budget deficit both look bad... but could have been much worse indeed

HUNGARY - In Brief 09 Mar 2022 by Istvan Racz

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CPI-inflation rose further to 8.3% yoy in February from 7.9% yoy in the previous month. Prices rose by 1.1% in February alone. High inflation is pretty much broad-based now, with 69% of the consumer basket with at least 5% yoy increases. Core inflation was also up, to 8.1% yoy from January's 7.4% yoy, on a 1.3% monthly increase. Non-fuel prices were rose by 7.9% yoy, accelerating from 7.2% yoy in the previous month.Somewhat curiously, MTI, the government's news agency added that the actual for the headline rate was higher than expected by analysts. That is not immediately evident, in our view, especially as the MNB made it straight right after the February 22 Monetary Council meeting that it expected the February headline rate between 8-8.5%, by which statement the potential for any surprise has been greatly reduced.For sure, the February inflation number could have been markedly worse in the absence of the existing three administrative price freezes. Márton Nagy, senior advisor to PM Orbán, has just said that fixed pipeline gas and electricity prices (a scheme introduced in 2013) reduced the yoy headline rate by 1.5-2%-points, temporarily freezing fuel prices took away nearly 1%-point, whereas the also temporary fixation of seven basic food items helped with 0.8-1%-point. On this subject, our humble remarks would be that the impact of the first two items is growing together with the market prices of imported energy, whereas we doubt that freezing some food prices had any NET effect at all, because of the substitution possible at hypermarkets. Anyway, overall food prices rose by no less than 2.1% mom in February.In separate news, the cash deficit of the central governm...