Inflation below expectation in January, depressed by non-core factors

HUNGARY - In Brief 11 Feb 2016 by Istvan Racz

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CPI-inflation came out at -0.1% mom, 0.9% yoy in January. The yoy headline rate is unchanged from December, and is below the 1.1% yoy average expectation in Portfolio.hu's analyst poll. But this forms no basis for a base rate cut by the MNB, as inflation was depressed by two non-core factors. First, fuel prices fell 4.2% mom in January, which cut the mom headline rate by 0.3% points. This means that the big base effect, on the basis of which analysts expected the yoy headline rate to rise - i.e. that fuel prices dropped by an exceptionally big 7.7% mom in January 2015 - materialized only partially. Second, the average prices of pork fell by 15.3% mom in January, in the wake of a cut in the VAT for these products from 27% to 5% at the start of the month. The negative effect of falling pork prices on the mom headline rate was 0.2% points. This means that excluding fuel and pork (about 9.5% of the CPI basket), the CPI would have risen by 0.4% mom. Consistent with these details, core inflation rose by all existing indices calculated by the KSH and the MNB. The main core inflation index rose to 1.5% yoy from 1.4% yoy in December, and the range for all five indices (the main index, the main index on sda basis, and three analytical indices reported by the MNB) rose to 1.3-2% yoy in January, from 1.1-1.7% yoy in December. This means that the MNB's 1.35% base rate is standing at the lower edge of the current core inflation range, although it is still clearly higher than the headline yoy inflation rate.