ungary CPI pressure intensifies further, net core reaching alarming level - Macrocomment from Concorde Securities

January inflation was 2.7%, equal to a month earlier. Core inflation rose to 3.2% from 2.8%.

HEADLINE AND CORE INFLATION (YOY)

Source: CSO, Concorde

The headline inflation was kept unchanged mainly by petrol prices, whose annual decline annulled the rise in market services and tobacco prices (the latter happening due to excise duty hike).

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 2010. The unchanged headline in January was chiefly assisted by the non-core items, mainly petrol prices. The underlying (growing) inflationary pressures remain intact, as services and tobacco prices grew further. The closely watched net core inflation rose from 2.9% in December to 3% in January, matching the level described earlier by the MNB deputy governor as a level deserving to be analyzed with respect to its compatibility with price stability.

HEADLINE AND UNDERLYING INFLATION (YOY)

Source: MNB

Market services price increase was outstanding in January relative to seasonal patterns. The price increase was not attributable to a single item, was relatively widespread. The impact of a decrease in the financial transaction levy was muted, meaning banks have only partially passed the drop in levy onto clients.

MARKET SERVICES PRICES (M-O-M)

Source: KSH, Concorde

The composition of services prices reveals telco prices’ significant contribution to recent developments.

Recent months showed telco deflation moderating – as such, they have seized to be the mitigating factor. Market services prices less the telco contribution, reaching a y-o-y growth of 4.5%, 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 fell to 7.3% from 8% on an annual basis, primarily caused by the help of statistical base effect. Regarding processed food prices, we can see a modest increase.

We see the February CPI to drop to 2.6%, and remain around this level in the early part of 2019.

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 3.5% at the end of this year. We see 2019 average inflation to reach 3%.

 

 

 

 

Hai Thanh Le Phuong, CFA
Head of Research

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
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