Positive surprise on inflation in December, with a small footnote on methodology

HUNGARY - In Brief 13 Jan 2023 by Istvan Racz

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December figures on CPI-inflation, reported this morning, look just beautiful. They are 1.9% mom, 24.5% yoy, the year-on-year number up from 22.5% in November. But the median analyst expectation in Portfolio.hu's survey was 25.8%, and MNB's Q4 inflation report expected 24.8-27.1%. The latter was based on the estimate that the large administrative increase in fuel prices on December 6 should add 2%-points to the CPI.  Core inflation was 1.6% mom, 24.8% yoy, the year-on-year rate up from 24% in November, but still positively closing the gap between the headline rate and the core inflation rate. Non-fuel inflation was 0.3% mom, 24.2% yoy, according to our own estimate, the latter indeed falling from 24.6% in the previous month. But please be careful. The figures indeed look great, but not quite as good as they seem to at first glance. In KSH's report, fuel prices went up only by 24.4% mom, much less than what the MNB and everyone else estimated. The possible reason has to do with the distinction between cars owned by private individuals and those owned by legal entities in statistics. It appears that KSH included some of the latter - whose drivers were not eligible to buying lowly priced fuels before the latest price increase - in household consumption, and that made the December price increase look more modest. In addition, KSH said that the retail price of unsubsidised pipeline gas fell by 11.8% mom in December, even though there was no corresponding price measure in that month. What must have happened is that in September, when they included the impact of the August price increase in the CPI for the first time, they overestimated the impact. Since then, it has been rev...