October inflation figures represent a moderate surprise on the upside

HUNGARY - In Brief 08 Nov 2019 by Istvan Racz

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CPI-inflation for October came out today at 0.6% mom, 2.9% yoy, the latter up from 2.8% in the previous month. The analyst consensus for the yoy rate was in the range of 2.7-2.8%, and our forecast was 2.7%. This moderate negative surprise was mainly blamed on food prices (up 0.8% mom on the global swine fever problem, which is now present in wild boars, etc. in Hungary but have not yet hit agricultural livestock) and on fuel prices (up 1.8% mom, as a carry-over from September, when rising wholesale prices were not followed by the prices charged to consumers at gas stations).But beyond these more or less usual and easy blames, the more important facts appear to be a jump by adjusted core inflation to 3.7% yoy from 3.4% yoy in the previous month, the inching up of core inflation to 4% yoy from 3.9% at the previous reading, and the unchanged 3.7% yoy level of non-fuel inflation. Core inflation is now highest since December 2012 and adjusted core inflation is the highest since December 2008. Quite evidently, the message of the new data is that the various core inflation indices continue to keep the 4% ceiling of the MNB tolerance range under siege.The reason for this elevated level of CPI-inflation by various core measures is (1) the continued strength of the domestic economic cycle and (2) the forint's recent (MNB-tolerated if not welcome) weakening of the forint in EURHUF terms. Most lately, retail sales was reported as having expanded by 5.8% yoy in September and also in Q3, both in volume terms, of course. In addition, industrial output jumped by 9% yoy in September and by 6.9% yoy in Q3, the September figure representing another unexpected breakout in the upper direct...