CPI - February CPI – Price Pressure Growing

February inflation was 3.1%, up from 2.7% a month earlier. Core inflation rose to 3.5% from 3.2%.

HEADLINE AND CORE INFLATION (YOY)

Source: CSO, Concorde

The headline inflation rose on a rise in unprocessed food, traded goods and fuel prices.

CONTRIBUTION TO THE RISE IN CORE CPI* (PPS)

Source: MNB, Concorde; *Cumulative since trough in July 2016

The core inflation rose further, reaching the highest level since 2014. Recent months indicate a growing importance of services and processed food contribution to the core indicator.

MNB’s alternative core indicators reflect the continuation of the recent rise in underlying inflation pressure. All indicators grew further during the month, to levels, unseen since at least 2010. The rising headline in February was assisted also by core items, next to petrol. The underlying (growing) inflationary pressures remain intact, as services and tobacco prices grew further. The closely watched net core inflation rose from 3% in January to 3.2% in February, being in the region described earlier by the MNB as ‘to be watched’ closely regarding its implication for the perseverance of inflation pressure / compatibility with price stability.

HEADLINE AND UNDERLYING INFLATION (YOY)

Source: MNB

Market services price increase was outstanding in February relative to seasonal patterns. The price increase was not attributable to a single item, was relatively widespread, and would have been higher had telecom prices risen too.

The impact of a decrease in the financial transaction levy was muted in January and absent in February, meaning banks have only partially passed the drop in levy onto clients.

MARKET SERVICES PRICES (M-O-M)

Source: KSH, Concorde

February showed telco deflation moderating somewhat – as such, they have mitigated the overall price rise. Market services prices less the telco contribution, reaching a y-o-y growth of 4.6%, clearly indicate the pass through of wage increases. The indicator rose from 1.7% in early 2016.

MARKET SERVICES PRICES (M-O-M)

Source: KSH, Concorde

Unprocessed food prices rose to 9.6% from 7.3% on an annual basis, primarily caused by the help of statistical base effect (eggs) and a rise in vegetable prices. Regarding processed food prices, we can see a modest increase.

We see the March CPI to rise to 3.4%, as a robust core inflation is assisted with fuel price contribution to the headline.

Further risks to the CPI forecast stem from several directions: uncertain future of telco price competition; uncertain crude outlook, and the potential impact of global energy prices on regulated energy prices).

We see the CPI at 3.7% at the end of this year. We see 2019 average inflation to reach 3.1%.

 

Given the continuous rise in the core price pressure, we expect the MNB to adhere to its commitment of normalization of monetary policy. That said, yesterday’s surprise dovish decision by the ECB makes it likely that ‘hard steps’ of factual liquidity tightening may come only later during the year, dependent on the ECB monetary policy stance. In the meantime, the MNB’s monetary policy toolkit could be altered in a way to reflect normalization (primarily the width and position of the O/N interest rate band).

 

 

Hai Thanh Le Phuong, CFA
Head of Research

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
Phone: | Fax: | Mobil:
|
MEMBER OF THE CONCORDE GROUP

 

 

This message and its attachments contain confidential information, and their disclosure is restricted by law and the relevant regulations. If you are not the intended recipient, it may be forbidden and illegal to disclose, copy, distribute or use the information in this message. If you are not the intended recipient, please notify the sender immediately and delete this message and its attachments. If you are a client of Concorde Securities Ltd., the standpoints and suggestions described in the message should be interpreted in accordance with the relevant parts of the agreement in effect between us.