Year-on-year CPI-inflation sharply down in September, but nothing unexpected

HUNGARY - In Brief 10 Oct 2023 by Istvan Racz

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The yoy headline rate dropped to 12.2%, from 16.4% in August. This was essentially due to a large friendly base effect, as the impact of last summer's energy price reform had just fallen out of the formula. The monthly inflation rate was still 0.4%, so not at all negligible. Core inflation looked better on a monthly basis, though, core prices decreasing by 0.2% mom in September, bringing the yoy core rate down to 13.1%, from 15.2% in August. The difference between the monthly changes of the CPI and core prices could be traced back to fuels and processed food. Fuel prices actually rose by 3.3% mom, raising their yoy increase to 35.4%. This meant that non-fuel inflation was 0.1% mom, 10.4% yoy in September, the yoy rate falling sharply from 15.1% in August. Note: Yoy changes in percent; Sources: KSH, own estimates Importantly, all this went pretty much as expected. Analysts asked by Portfolio.hu in recent days had a median expectation of 12.3% yoy. MNB predicted a much more optimistic 11.2% yoy for September in the Q2 inflation report in late June, but changed that forecast to exactly 12.2% yoy in the Q3 report, published in late September, on the weaker forint and increasing energy prices. For year end, the MNB now expects 7.1% yoy for the headline rate. This largely corresponds to our calculations, assuming a total 5% increase in domestic fuel prices between tomorrow and the average price for December. We had been less optimistic about the year-end figure until most recently, but now it looks that fuel prices may fall by roughly 2% in October alone, assuming no further price change between tomorrow and end-October. All in all, the political target of a single-digit hea...