Hungary's Inflation Picture Not So Fascinating Anymore?

  • 11 May 2010 4:00 AM
Hungary's Inflation Picture Not So Fascinating Anymore?
"Hungary’s inflation eased to 5.6% year on year in April from 5.9% in March, but the Dec/Dec CPI is to come in much higher than previously expected, the consensus forecasts of analyst showed in a Portfolio.hu poll on Monday.

"CPI is expected to increase by 0.5% m/m and 5.6% y/y in April, slowing down from 0.6% m/m and 5.9% y/y, respectively. Raw foods and fuels are expected to remain the strongest driver in m/m headline CPI figures but their importance for monetary policy is only marginal. On the other hand, we expect market services, which are much more relevant for the CB, to remain flat in Apr, confirming that inflation expectations remain well anchored," commented Diana Gesheva, research analyst at 4Cast in Sofia.

She also looks for "continued disinflation in industrial durable and non durable goods - also supporting that inflation remains well in check - the MPC’s decisions in the future should still only be constrained by market conditions."

"We believe the trend is still pointing downwards until the middle of the summer, despite the upside surprise in January and March," said György Barta, analyst at CIB Bank in Budapest. He believes the price increase was bigger primarily at food, clothing and fuels than at other components. The headline figure, however, was pushed downward by the lack of pressure from wages and domestic demand, hence the CPI print will come down after the jump in March, he projected.

Nigel Rendell, research analyst at the Royal Bank of Canada in London, also expects lower inflation in April, citing weak domestic demand as one of the key reasons.

As a general view we can state that the market expects relatively moderate disinflation even amidst the deep recession, because they see higher fuel and energy prices in April. According to the market, Hungary’s consumer price index will bottom out in July or August when the impact of last year’s VAT hike drops out of the index. After that a slow rise is expected until the end of the year, commented Eszter Gárgyán, analyst at Citi in Budpest.

"There is little doubt that inflation will fall significantly in the second half of the year as tax hikes from 2009 drop out of the annual comparison," Rendell noted.

It is also becoming the general view that we’ll see a rising CPI trend in H2. The Dec/Dec consensus has ticked 1ppt higher since February and currently stands at 3.4%."

Source: Portfolio Online Financial Journal

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