CPI - October CPI – Core Indicators Edge Up

October inflation was 2.9%, up 0.1pps from a month earlier. Core inflation rose to 4.0% from 3.9% in September.

HEADLINE AND CORE INFLATION (YOY)

Source: CSO, Concorde

The headline inflation rose mainly as core prices rose even more. Fuel and administered prices had exerted a negative impact on the headline.

HEADLINE AND UNDERLYING INFLATION (YOY)

Source: MNB

The central bank’s underlying inflation indicators have fared mixed, demand sensitive and net core literally eliminating the reduction in the underlying inflation trend in summer months, while sticky price inflation dropped somewhat. The closely watched net core inflation rose to 3.7%, matching the decade peak observed this summer. This is 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.

Market services price increase exceeded the seasonal experience in autumn months.

MARKET SERVICES PRICES (M-O-M)

Source: KSH, Concorde

Telco prices rose significantly in autumn months, adding to the gradually rising pressure from other services.

MARKET SERVICES LESS TELCO (M-O-M)

Source: CSO, Concorde

The chart shows market services’ inflation excluding the effect of telco inching somewhat higher from August.

Unprocessed food prices’ inflation slowed to 6.2% from 6.4%, on an annual basis, primarily caused by potato and vegetable prices.

Just to show the huge hidden inflation building up in the public sphere, it is worth comparing the market services prices (excluding the telco component, which has recently been volatile), with the inflation in the public services sector.

ANNUAL INFLATION RATE IN THE PUBLIC SECTOR COMPARED TO THE PRIVATE SERVICES (Y-O-Y)

*To exclude costs linked to international energy prices.

Source: Concorde, KSH

The latter, constrained by the frozen-fee political determination of the government, has had a close to zero inflation rate in October (the month of the local municipality elections), compared with the continuously rising inflation rate in the non-regulated services sector (reaching 5.1% in October). The considerable lack of price hikes in the public sector leads to quality and capacity problems in this sector, eventually causing both a strain on public finances and an inflation problem once prices are aligned with costs.

We see the November CPI to rise to 3.3%.

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 3.4%, and the yearend forecast is 3.9%

 

 

 

 

 

Hai Thanh Le Phuong, CFA
Head of Research

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
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