July inflation data matched analysts' median forecast exactly

HUNGARY - In Brief 08 Aug 2023 by Istvan Racz

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This means 0.3% mom, 17.6% yoy as for the headline rate (see our previous note on the subject yesterday). Positively, core inflation was only 0.2% mom, 17.5% yoy, so it is now slightly below the headline rate. Non-fuel inflation fell to 17.2% yoy, as fuel prices rose by 21.5% over the past twelve months. The main driver of July disinflation was food prices, which fell by 0.9% mom, to a great extent thanks to seasonality and good weather conditions (lots of rain) this year, but possibly in part due to the government's new price-watch web service, which was started from July 1 (also see yesterday's note on this). The foregoing chart shows the development of the headline CPI-inflation rate, broken down into fuel and non-fuel (sources: KSH and our own estimates), with our forecast for the rest of this year included (see the values right of the magenta bar). Our end-year forecast for the headline rate remains 7.7% yoy, against which we see some upward risk because of the most recent upward trend of the EURHUF exchange rate. In our recent quarterly forecast update, we expected EURHUF at 400 for year end. We still hold that forecast, but we also admit that over the past few weeks, the forint has weakened somewhat faster than we had expected. For sure, the MNB will have to be cautious about further rate cuts and the exchange rate, because of the latter's apparent high sensitivity to the former. On the other hand, the MNB may be reassured by the fact that the CPI-inflation curve is currently heading to significantly below 10% at end-year, meaning they will most liely have a considerable buffer against the government's (politically flavoured) target of reaching a single-digit le...