June was just another month with rising core inflation

HUNGARY - In Brief 11 Jul 2017 by Istvan Racz

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With little exaggeration, reports on new inflation data releases could now be easily copy/pasted from one month to the other, given that the basic trend shows no change, only the specific values are getting somewhat higher on each occasion. Regarding the June data, the headline CPI-inflation rate fell again, to 0% mom, 1.9% yoy from 2.1% yoy in May, but essentially everything else rose. The drop of the headline rate was due to another 1.7% decrease of fuel prices, whereas the five officially calculated indicators of core inflation rose to 1.7-2.4% yoy in June, from the 1.6-2.1% yoy range held in the previous month. In addition, our favorite core indicator, non-fuel CPI-inflation rose again, to 2.2% yoy this time, from 1.9% yoy in May, 1.6% in April, and the cyclical bottom value of 0.7 yoy in June 2016.CPI-Inflation and Fuel Prices (yoy rise in %)Note: Values for December 2011 - June 2017 represent actuals; July 2017 - December 2018 is forecastSources: KSH, own estimates and forecastAll this seems to reinforce our long-held view that CPI-inflation will most likely reach the MNB's 3% target level by Q2 2018 (if not earlier) and surpass it by a moderately increasing amount later on, rather than reaching the target only in Q1 2019 and neatly sticking to exactly that level in the subsequent five quarters, as the MNB believes. Already, there are serious signs of rising (and substantial) inflation in the domestic economy, including a 3.3% yoy GDP deflator in Q1, a 2.7% yoy rise of industrial producer prices in May, 3.4% yoy and 4.1% yoy rises in merchandise imports prices and agricultural producer prices, respectively, in April, and 8.1% yoy growth by the average market pric...