Fuel prices may turn inflation reports upside down in May and June

HUNGARY - In Brief 06 Jun 2018 by Istvan Racz

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CPI-inflation figures for May are due on Friday this week. We used to predict 0.3% mom, 2.4% yoy, the latter up slightly from 2.3% yoy in April. But we do not do so any more, given a 5.3% mom jump by the wholesale prices of motor fuels, recorded in May, which was caused mainly by the strengthening US dollar. The USDHUF exchange rate went from 259 to 272 between end-April and end-May, and it was 5.6% higher in May than in the previous month in average terms.Of course, the whole monthly rise in wholesale prices is unlikely to appear immediately in consumer prices, because of competition between retailers. We expect +4% mom for fuel prices in May - a big rise is quite evident for anyone who visited a petrol station recently. Combined this with the +0.3% mom non-fuel CPI-inflation that we expect (down from 0.5% in April and also in May 2017) would make the yoy headline CPI-inflation rate 2.7%, quite sharply up, of course.But that is not all. Even though both the dollar and fuel prices are correcting back a bit now, fixing fuel at its current price level would still lead to 2.3% mom rise in wholesale prices in June, which would be in line with +3% for fuel consumer prices, because of the carryover from May. And this would make headline CPI-inflation no less than 3.2% yoy, quite sharply in contrast with the latest MNB forecast, which expected inflation to reach (but not to exceed) 3% only by mid-2019. Should the downward correction of fuel prices continue, and the consumer prices for fuel rise only by 1% mom in June, then the headline inflation rate would most probably be 'only' 3% sharp in that month. And in case fuel prices stop there and do not change at all in H2 2018, t...