Mixed feelings about the December CPI-inflation data

HUNGARY - In Brief 12 Jan 2024 by Istvan Racz

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The headline rate of CPI-inflation for December was reported at -0.3% mom, 5.5% yoy this morning. Core inflation was much stronger, at 0.2% mom and 7.6% yoy. Non-fuel inflation, which we also think is an important indicator, was 0.1% mom, 6.4% yoy. The yoy headline rate dropped sharply, from 7.9% in November. The other two rates also fell, but much less impressively: core inflation decreased from November's 9.1% yoy, whereas non-fuel inflation dropped from 6.7% yoy, that is only by three decimal points from the previous month. Looking at these figures, one could easily get enthusiastic, as the analyst 'consensus' (actually the median expectation of Portfolio.hu's analyst poll) for the headline rate was 5.9% yoy, and the lowest forecast in that survey was 5.7% yoy, and so the actual speed of disinflation, as far as the headline rate is concerned, clearly beat expectations. But that could be a superficial look. We mean analysts being positively surprised is great, but it does not tell too much about future inflation prospects in itself. In this case, the problem is that the bulk of sharp disinflation clearly came from fuel prices, which fell by 5% in December alone, against a 24.4% single-month rise in the same month of 2022, when, as the Reader may remember, Santa Claus gave locals the deregulation of retail fuel prices as a Christmas present. Consequently, the overall CPI rose by 1.9% in that month alone, creating a very friendly base effect for this December, whereas in December 2023, the yoy rate of fuel price inflation collapsed from 25.4% (November's data) to just -4.2%. And all that happened to an item with an 8.1% weight in the consumer basket. In addition, KSH o...