Inflation fell a bit in February, the economy is weakening further - nothing unexpected

HUNGARY - In Brief 08 Mar 2023 by Istvan Racz

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What everyone had been expecting is now there in the actual data: following a sharp upsurge since about April last year, CPI-inflation edged down a bit, to 25.4% yoy in February, from 25.7% yoy in the previous month. Likewise, core inflation fell a little, to 25.2% yoy from 25.4% yoy. Yesss (!), said some analysts and most of the press, the cyclical peak has been passed indeed, we told you, didn't we? Well, almost true, we would say, but factually, it was only a first and key condition of passing the peak that was met in February, namely that inflation came down a bit, for the first time after a long period of steep rise. And yes, we as well believe that the headline inflation rate is now likely to decrease continuously, to 22% yoy by June and at an accelerated rate, supported by friendly base effects, to 10.6% yoy by December, provided energy prices make no serious change from where they currently are. Staying with the facts, so far inflation has done exactly what the MNB predicted recently, that is it came off its (hoped-for) cyclical peak in February, by a little bit only. So the champagne bottles may still remain closed, and there is good reason to remain cautious, just as Mr. Virág of the MNB has been repeatedly saying in his recent monthly public appearances following rate-setting meetings. Just to add a bit of further colour: Non-fuel inflation actually rose to 24.7% yoy in February from the previous 24.6%, as fuel prices dropped by 3.6% on a monthly basis. In addition, retail gas prices fell by 5.6% mom in February, purely as a matter of a statistical correction, that means without an actual decrease. So non-fuel and non-gas inflation was one further decimal po...