Headline CPI-inflation expected to have fallen to 2.7% yoy in December

HUNGARY - In Brief 14 Jan 2019 by Istvan Racz

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Tomorrow at 9am BUD time, the KSH is scheduled to publish its consumer price data for December. Analysts contributing to Portfolio.hu's poll expect another sharp drop by the headline rate, to 2.7% yoy from November's 3.1%yoy, and we agree with that forecast. In our own spreadsheet, this result would come about as a combination of a 6% mom decline by fuel prices and a 0.1% mom rise by non-fuel prices, implying a 0.4% mom decrease by the CPI. The background is that the wholesale prices of fuel fell by 6.8% mom in December, whereas the monthly rise by non-fuel prices would be the same as in December 2017. Regarding the latter, December is typically a month with little change by non-fuel consumer prices, as no sane retailer or government would risk any significant hike in the Christmas season.Consequently, the expected sharp drop by the yoy headline rate would be fully the product of the ongoing fuel price correction, just as it was the case in November. By the way, the headline inflation rate may fall further to 2.3% yoy in January, which would happen on the same basis, as current information on the wholesale prices of fuel suggests.Naturally, the MNB is likely to take comfort from the fact that the headline rate is falling, but it is unlikely to express its satisfaction in any harsh language, focussing instead on its own adjusted core inflation rates in its public assessment.