High CPI-inflation data for December: unexpected and unusual

HUNGARY - In Brief 14 Jan 2025 by Istvan Racz

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For December, everyone expected a sharp upturn by the headline CPI-inflation rate from 3.7% yoy in November: analysts predicted 4.4% yoy, the MNB expected 4.3% yoy, the latter together with unchanged 4.4% yoy for core inflation, fuel prices pushing up the headline rate. However, the actual jump by the headline rate to 4.6% yoy and core inflation to 4.7% yoy was clearly unexpected. This meant +0.5% mom for both indicators, which looks very unseasonal for a December. Normally, retailers are very cautious with price increases in the middle of the highly critical Christmas shopping season, leaving adjustments for even significant cost pressures for the early part of the following year. But this time around, it was all different: fuel prices rose 2.2% mom (no surprise, as USDHUF rose 10.9% over the last three months), household energy was up by 1.7% mom, food and services rose 0.4% mom, and durables got 0.6% mom higher. So, what may have happened is that December proved to be very strong in retail (similar to November, when the volume of retail sales grew by 4.4% yoy), and forceful demand made it possible for much of the cost pressures generated by the weakening forint to pass through immediately. The result was, once again, rather unseasonal: in December 2023, the monthly rate of core inflation was 0.2%, and headline inflation was -0.3%, the latter drop obviously caused by sharply decreasing fuel prices (-5% mom) in that period.    Note: Year-on-year changes in percent; Sources: KSH, own estimates Regarding the likely immediate policy consequences, there seems to be absolutely no way at all for any possible further interest rate cut by the MNB at any time in the foreseeabl...