"No matter how deep Hungary plunges into recession, its consumer prices leaped to a 16-month high in December 2009, according to analysts’ consensus forecast in a Portfolio.hu poll. While CPI was fuelled by tax hikes and rising crude prices, it will turn around swiftly and could drop to below the central bank’s (NBH) medium-term goal of 3.0% already in the second half of 2010, the estimates show."It’s because of fuels," an analyst gave a highly concise explanation as to why Hungary’s inflation shot up by 0.5 percentage points to December from November last year.
The Central Statistics Office (KSH) will publish the Dec CPI print on Thursday that will show a consumer price increase of 5.7% yr/yr, according to Portfolio.hu’s survey. The country’s inflation has not been this high since August 2008.
Although fuels have a mere 5.3% weight in household consumption, the price index was still driven substantially higher by the combined effect of massive fuel price increases in the last months of 2009 and marked declines in late 2008. A litre of gasoline cost about HUF 230 at the pumps in Dec 2008, then almost HUF 300 in Dec 2009 and it is now around HUF 320, pointed out Gergely Suppan, analyst at Takarékbank in Budapest.
The relativity of the pickup and the strength of the base effect are nicely demonstrated by the fact that it would take no more than an 0.2% month-on-month fuel price increase - which is not an outstandingly large figure - to take the yr/yr index up to 5.7%.
The rise in energy prices and the fact that Hungary’s inflation came in higher than expected in November after four straight months of downside surprises has led to a stop in the continuous decline in inflation expectations.
Gábor Ambrus, analyst at 4Cast in Sofia, expects Dec's CPI flat at 0.0% m/m, taking the yr/yr index up to 5.5% from 5.2% in November.
"The flat m/m figures hides quite strong movements in the components which net each other out. Firstly, further upward pressure is expected from food prices and the November electricity hikes which due to methodological reasons appears in the CPI stats with a month of delay."
"These factors should be offset by a seasonal reduction in the prices of durable goods (accentuated by a stronger currency), an estimated 1.2% drop in fuel prices and further easing in district heating prices. Market services, a key gauge of inflation expectations is seen coming in flat m/m."
Altogether, the analysts expect further uptick in the headline figure in January as a result of regulatory price hikes and the increase in the excise tax on fuel. After that, however, the rise should stop.
According to the consensus estimate in Portfolio.hu’s poll, inflation in Hungary will peak at 5.8% in the first months of 2010.
Of course, you should not bet your life savings on this number. The beginning of the year is always a hectic period in terms of price decisions therefore larger uncertainties surround the estimates, as well.
There is, however, a general agreement that recession and muted demand will have an ever larger influence on the price index and as one-off elements drop out, the 12-m rate will go lower and lower every month.
An especially sharp fall is expected when last July’s VAT hike will drop out of the index. It is therefore not by chance that the analysts expect Hungary’s CPI to be as low as 2.6% by the end of the summer. In their view, there should not be many changes by year-end either. The consensus estimate for the end-2010 inflation came to 2.7%.
Needless to say, not every respondent projects that the price index will remain below the central bank’s 3.0% goal, but there was only one economist in the poll that sees CPI outside the +/-1ppt "tolerance" range.
As for the NBH’s interest rate policy this means the Monetary Council will not have to be concerned about inflation, and it can keep its focus on financial stability aspects when it decides about the pace of rate reductions."
Source: Portfolio Online Financial Journal
13.01.2010