Inflation beat the analyst consensus again in March

HUNGARY - In Brief 09 Apr 2019 by Istvan Racz

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But unfortunately in the wrong direction. The headline rate came out at 0.7% mom, 3.7% yoy, the latter up from 3.1% yoy in February. This indeed beat expectations, as the analyst consensus (including us) expected 3.5% and the MNB itself projected 3.6% in its late-March inflation report.As a matter of fact, a lot of this jump in March came from fuel prices, which rose by a surprisingly big 4.2% in the month. However, core inflation indicators also look ugly. KSH's core inflation measure rose to 3.9% yoy from February's 3.5%, and the MNB's favourite index, core inflation excluding the impact of indirect taxes, rose by 3.5% yoy, also sharply up from 3.2% yoy in the previous month. This was the seventh consecutive month that yoy inflation accelerated according to this latter index, sending a very clear signal to the central bank that something should be done.It is perhaps no accident that the MNB stepped up its efforts to tighten liquidity through FX swaps yesterday, reducing the outstanding swap stock by HUF47bn to HUF1932bn. This measure is unlikely to be very influential as regards money market rates, given the vast abundance of excess liquidity in the system (more than four times the total stock of mandatory reserves), and the exceptionally low sterilisation ratio (22% as of yesterday). However, it may serve well as a short-term forint supporting move, in case today's inflation figures caused some additional HUF weakness. Anyway, cutting FX swaps by this much means a net pro-HUF market intervention of about EUR145m, with a value date of April 10, i.e. tomorrow.Will the MNB return to the question of raising interest rates this month? Not in any serious form, we believe....