September CPI data changes inflation outlook markedly

HUNGARY - In Brief 08 Oct 2015 by Istvan Racz

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Falling crude oil prices seem to have been playing to the hands of the MNB's policy of monetary easing recently, just as we pointed out in our mid-September monthly. But there is one big difference between actuals and the inflation outlook we provided in that report: at that time, domestic fuel prices (8.2% of the CPI basket) were standing slightly up on end-August, but for the full month of September, they actually fell by 5.1% mom, pulling the yoy change down to -17%. Thus the September CPI figures, reported this morning, turned out at -0.6% mom, -0.4% yoy (the latter against a recent -0.1% yoy domestic analyst consensus), even though the various core inflation indices calculated by the KSH and the MNB rose marginally, with their yoy values reported between 1.1-2%, depending on the specific definitions. So the fact is that markedly falling fuel prices are holding back consumer inflation, despite robust domestic consumption growth, easy monetary policy and an increasingly tight labour market with substantial domestic wage growth. The consequences of all this on Hungary's CPI-outlook until end-2016 are very significant. Except for the case of a potential rapid and major rebound in fuel prices over the next few months - reasons for which cannot be immediately seen - yoy CPI-inflation is not likely to rise to levels by December and January, at which the 1.35% MNB base rate would become deeply negative. Instead, the CPI is likely to be up only to 1.3% yoy by December and 1.6% yoy in January. And by that time, the economy will have probably slowed down sufficiently to secure that no further rise in the headline inflation rate would likely take place in the rest of 2016, to...