July inflation data to show a sharp decline of the yoy headline rate tomorrow

HUNGARY - In Brief 07 Aug 2023 by Istvan Racz

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KSH is set to release its July data for CPI-inflation tomorrow. There is no doubt at all that it will show a marked decrease of the yoy headline rate, because of a high base-period value: in July 2022, the monthly inflation rate was no less than 2.3%. In Portfolio.hu's usual analyst poll, the median expectation is a drop to 17.6% yoy, from 20.1% yoy in June, which just happens to be our forecast as well. This implies the expectation of a 0.3% mom increase, with 3% rise by fuel prices and a 0.1% increase by non-fuel items. The removal of administrative food price caps took place only from August 1, and the bulk of the forint's most recent weakening against EUR and USD has taken place since the last week of July, i.e. too late to have any material effect of the July CPI. So, both of these factors will be problems for August. On this basis, we expect the MNB to continue its series of 100 bps rate cuts at its late August Council meeting. The Council could in fact become more cautious than this, in view of the latest weak trend of the forint, which could be aggravated by further sharp cuts of the sterilisation rate, but it is much more likely to leave the reassessment of its loosening policy for the September meeting, where the Bank's next quarterly inflation report will also be due. For now, both the government and the MNB are attaching high hopes to an innovative new counter-inflationary instrument, an internet-based, publicly available price watch system, into which six leading retail trade chains have been obligated to upload their item-by-item daily sales prices for 62 product groups of hyper/supermarket goods since July 1. The Economy Ministry, which is behind this in...