Preview: Headline CPI-inflation will likely bounce back to 2.6% yoy in November

HUNGARY - In Brief 03 Dec 2017 by Istvan Racz

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We believe that the headline CPI-inflation rate, which fell from 2.5% yoy in September to 2.2% yoy in October, will most likely jump to 2.6% yoy again in November. (KSH is due to report this data on Friday, November 8.)A key preliminary fact in this regard is that the wholesale prices of fuel rose by 3% mom in November, on the basis of which we expect retail fuel prices to rise by 3.3% mom in the same month. The reason for a higher rise by retail prices should be some likely catching up with a materially bigger rise by wholesale prices than by retail prices in the previous month. The result would be a major difference from November 2016, when retail fuel prices actually fell by 1.1% mom.Regarding the non-fuel part (over 92%) of the CPI-basket, the average mom rise by that was 0.2% in November 2016. We expect exactly this number for this November as well. On the one hand, prices are likely to rise by less than in last November in the case of some specific items - e.g. milk, which the MNB seems to be particularly preoccupied with in these days - but on the other hand, the consumer market is now stronger than it was last year, and the pressure from wage-inflation and energy prices appears to be bigger.The repetition of 0.2% mom non-fuel inflation in November would lead to 0.4% mom, 2.6% yoy for the headline rate. Despite the seemingly big jump, this would mean no surprise or worry for the MNB, which predicted 2.4% yoy average CPI-inflation for Q4 in its September inflation report. And given a likely slide to 2.4% yoy in December, again in a great part due to a fuel-prices-driven base effect, both the end-year and the Q4 average headline inflation rate would be standing ex...