Interesting details from the new inflation report

HUNGARY - In Brief 31 Mar 2023 by Istvan Racz

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The MNB's Q1 inflation report was released yesterday. The outlines were communicated already two days earlier, right after the Council's meeting on Tuesday. Nothing revolutionary indeed, but some of the details appear to be interesting. Here are three points on those.1. The short-term rundown of inflation. The end-year target remains single-digit inflation, in line with the high(est)-profile political commitment, as we have all learnt well by now. On Q3 and Q4, the Report gives forecasts for quarterly average inflation, which we do not find particularly helpful. But for the immediately following four months, i.e. through June, monthly forecasts are also communicated in the background excel files. Taking the midpoints of cautiously widely set forecast ranges, the MNB expects headline CPI-inflation, starting from the actual 25.4% yoy in February, at 25% yoy in March, 23.4% yoy in April, 21.4% yoy in May and 19.8% yoy in June. Their expectation on the monthly inflation rates can be mechanically derived from this, such as 0.8% in March, 0.3% in April, 0% in May and 0.2% in June. To us, the monthly predictions for Q2 appear to be a bit too low, especially as the government does not appear to be in a hurry to pass on the impact of falling energy prices to consumers at all, obviously because it wants to get compensation for its spending on the remaining energy subsidies, as a matter of restrictive fiscal policy. As far as we are concerned, we would be quite happy to see the headline rate below 22% yoy in June, which would probably go below 20% anyway by July, because of the appearance of friendly base effects in Q3.2. A crucially important detail is the handling of the remain...