July consumer inflation at 2.3% mom, 13.7% yoy; the MNB has been vindicated

HUNGARY - In Brief 09 Aug 2022 by Istvan Racz

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Local analysts, expecting 13% yoy for the headline CPI-inflation rate of July, apparently underestimated the upward potential. The MNB did better with its 13-14% yoy forecast range. Anyway, the figures look quite ugly. The leading driver was food, up 4.1% mom, 27% yoy, a very unseasonal phenomenon in a summer month. The overall headline rate came from 11.7% yoy in June, meaning that inflation was accelerating at an accelerating rate. Core inflation reached 3% mom, 16.7% yoy, as the headline rate was pulled down by the administratively constrained prices of energy. The headline rate does not include the impact of the measure applied from May 27 that foreigners can only buy fuel at uncontrolled prices. However, Eurostat's harmonised CPI indicator, which KSH estimates regularly does so, raising the July headline rate to 14.7% yoy in July by that concept. August will most likely be even worse, actually much worse by all probabilities, as the impact of the latest measures to narrow the scope for administrative price controls will also appear. The MNB and we estimate the likely total one-time impact at 3.8%-points, which is likely to come on top of the current, already rather high inflation rate. It may easily be the case that our current forecast regarding the likely peak of inflation in this cycle - around 20% in Q1 2023 - will prove too conservative. Normally, the government keeps referring to the impact of the war, whereas analysts like to name international energy and food prices, without making reference to the war but frequently mentioning the current very bad drought in domestic agriculture, as key factors behind inflation. However, analysts also keep bringing up the...