CPI - May CPI – Unchanged Pace Masks Long Term Pressure / Short Term Relief

May inflation was 3.9%, equal to the one a month earlier. Core inflation rose to 4% from 3.7% a month earlier.

HEADLINE AND CORE INFLATION (YOY)

Source: CSO, Concorde

The headline inflation remained unchanged, but the details reveal a marked rise in core items and a fall in non-core.

CONTRIBUTION TO THE RISE IN CORE CPI* (PPS)

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

The core inflation’s rise was pretty widespread among items, not concentrated in a small set of goods and services. Recent months indicate a growing importance of services and processed food contribution to the core indicator (shown in the previous graph), making the impression that price pressures could be getting more stubborn.

MNB’s alternative core indicators reflect a continuation in the uphill climb in the underlying inflation pressure, following the modest correction a month earlier. The closely watched net core inflation rose to 3.7% from 3.4% in April, well above the level (3%) described earlier by the MNB as ‘to be watched closely’ regarding its implication for the perseverance of inflation pressure / compatibility with price stability. Such a change in the composition of the overall inflation towards the core items indicates that the important ‘inflation expectations’ might rise further, complicating the task of the MNB unless it receives some help from external conditions, such as oil or a slowing global conjunction.

HEADLINE AND UNDERLYING INFLATION (YOY)

Source: MNB

Market services price increase was outstanding in May relative to seasonal patterns.

The price increase was not attributable to a single item, was relatively widespread.

MARKET SERVICES PRICES (M-O-M)

Source: KSH, Concorde

May showed that market services prices less the telco contribution grew further, reaching a y-o-y growth of 5.2%, clearly indicating 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’ inflation slowed to 8.8% from 9.4% on an annual basis, primarily caused by a statistical base effect in potato and vegetable prices and a rise in prices of pig meat. Regarding processed food prices, we can see a modest increase.

We see the June CPI to fall marginally to 3.8%.

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

We forecast average CPI to reach 3.5%, and the yearend forecast is lowered due to the recent steep fall in crude prices to 4.3% from the previous 4.5%

This inflation reading raises the stakes for the MNB’s June meeting, when they are scheduled to issue their new inflation report with updated forecasts, and are expected to assess the inflation trend’s impact on the monetary policy. The current setup implies to us that a stable or somewhat stronger currency might be desirable to achieve the goals of monetary policy.

 

 

 

 

Hai Thanh Le Phuong, CFA
Head of Research

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
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