Fuel prices likely to push up yoy CPI-inflation markedly in August

HUNGARY - In Brief 05 Sep 2017 by Istvan Racz

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Please, be prepared this Friday (September 8) for a marked jump by the yoy rate of CPI-inflation, to 2.6% in August from 2.1% in July, despite our expectation of zero one-month change in average prices in August. This is likely to be caused by fuel prices alone (7.5% of the CPI basket), which we expect to have risen by 1.2% mom in August, against a 3.8% drop in the same month of 2016. Save for this factor, everything else will likely follow the usual seasonal pattern, non-fuel consumer prices falling 0.1% mom, just as in August 2016. As a result, the yoy rate of non-fuel inflation should stay at 2.3% in August, the same as in July.Should non-fuel inflation not fall at all in August, following a seasonal downturn of food prices, that would be a significant negative surprise, providing another piece of evidence of a marked upwardly trend of core inflation. However, for the time being our main scenario for the rest of 2017 remains an unchanged 2.6% yoy headline inflation rate, coupled with a rise of non-fuel inflation to 3% yoy, by December. It is to be remembered that fuel prices picked up significantly in late 2016, which we do not expect to be repeated in the rest of this year.Should inflation follow our main scenario, it would most probably taken by the MNB as convincing evidence that they should not change their soft policy line in the forthcoming months.