Upside CPI-inflation surprise in July

HUNGARY - In Brief 08 Aug 2024 by Istvan Racz

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CPI-inflation was reported at 0.7% mom, 4.1% yoy for July, the latter up from 3.7% yoy in June. Core inflation accelerated even more sharply, from 4.1% yoy in June to 4.7% yoy in July, on the same 0.7% mom average increase in core prices, as for the headline rate. Note: Year-on-year changes in percent; Sources: KSH, own estimates That year-on-year inflation rose in July was no surprise at all, everybody expected that. However, the size of the upturn was unexpected: analysts predicted 3.9% yoy for the headline rate, whereas the MNB's forecast was 3.8% yoy for the headline rate and 4.6% yoy for core inflation. The prices of services, a relatively strong part of the economy, still rose by 9.1% yoy, and fuel prices were also up by 6% yoy. Regarding core inflation, the monthly increases were systematically high, between 0.5-0.8% mom, over the last five months, and in that period, annualised core inflation reached 8.2%, which is somewhat ominous, in our view. Yesterday, we wrote that even though industrial, retail sales and merchandise trade data reflects an unexpectedly weak economy, the relative weakness of the forint in the EURHUF 395-400 range will likely hold the MNB back from another base rate cut in August. Today's data seems to reinforce that judgement, as it would look quite strange for the MNB to continue loosening as if nothing had happened, in the face of an unexpectedly sizeable upturn in inflation.