Surprise, surprise: CPI-inflation down to a single-digit level already in October

HUNGARY - In Brief 10 Nov 2023 by Istvan Racz

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The October figures for the headline inflation rate were -0.1% mom, 9.9% yoy, the latter falling from 12.2% yoy in September. This surprised analysts, who had a median expectation of 10.3% yoy, our own forecast figure being 10.2% yoy. Crucially, food prices fell by 0.1% mom, a very much non-seasonal monthly drop. Economy Minister Nagy, who promptly took responsibility, in the name of the government, for October's disinflation success, attributed this to government measures, including the online price-watching service introduced this July. We are more of the view that the favourable move by food prices could be derived from agricultural producer prices (-19.4% yoy in August) and merchandise import prices (-15.4% yoy in September) already, with El Nino weather (warm and wet),  the appreciating forint (-7.9% yoy by the EURHUF rate on average in October), falling energy prices and weak economic conditions both domestically and abroad all playing a role. Fuel prices also fell by 3.8% mom, by somewhat more than it could be expected on the basis of preliminary information. As a result, core inflation came out at 10.9% yoy, significantly above the headline rate but still markedly down from 13.1% yoy in September, whereas non-fuel inflation dropped to just 8.4% yoy from 10.4% yoy in September (as fuel prices still rose by 30.2% in yoy terms, against their administratively depressed retail prices a year ago, and so they pushed the headline inflation rate substantially upwards). Regarding the outlook, the headline rate is essentially set to continue its sharply decreasing trend for another three months, probably dropping to 6.5-7% yoy in December and 5.5-6% yoy in January. It wil...