Good-looking headline CPI reading in June, but somewhat misleading

HUNGARY - In Brief 09 Jul 2024 by Istvan Racz

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Headline CPI-inflation for June was reported at 0% mom, 3.7% yoy, the latter down from 4% in May, this morning. Analysts expected 3.9% yoy, so the actual looks like a really good figure. Note: Year-on-year changes in percent; Source: KSH However, this positive picture might be a bit misleading, as core inflation was recorded at 0.5% mom, 4.1% yoy, the latter actually up from 4% in the previous month. So, it was non-core prices which did all right in June: food, driven by non-core seasonal items, fell by 0.3% mom (much of rain started to fall suddenly, after a relatively dry period previously), fuel prices were unexpectedly reported to have fallen by 3.4% mom, and even retail gas prices fell by 4.6% mom (more accurately they did not change at all, but the share of subsidised gas out of total consumption decreased due to the summer heat). However, services prices still went up by 9.7% yoy, which kept core inflation higher than the headline rate. But even so, inflation prospects for the rest of 2024 are starting to be more favourable than so far. This is because of nicely contained fuel prices, where the MNB's recent slowdown of rate cuts and the forint's related moderate strengthening has been an important contributor, weather conditions appear to be more favourable than previously expected, which is good for vegetable prices, the economy is not recovering at a rapid pace, and there seems to be little inflation to be imported from the European, or even the global, economy. Statistics on retail gas prices might be seen KSH playing a game with the figures at first glance, but as retail gas consumption is decreasing, the share of subsidised gas is bound to increase within t...