August CPI-inflation somewhat mixed, but more good news than bad

HUNGARY - In Brief 10 Sep 2019 by Istvan Racz

The headline rate fell to 3.1% yoy from July's 3.3% yoy, mainly, though not exclusively, on lower food prices, on account of which consumer prices fell by a marginal 0.1% mom. The latter was partly seasonal, given the typically beneficial impact of the summer season on food prices, but not entirely so. This time around, the prices of consumer durables and generally industrial products were stable or moderately decreasing, reflecting the weak European cycle and the stronger forint (HUFEUR) until mid-August, whereas the mainly domestically determined prices of services rose by above-average amounts. Importantly, the lower headline rate was not driven by fuel prices this time, as non-fuel inflation also fell, to 3.7% yoy from 3.9% yoy in July.Note: Yoy changes in %; Sources: KSH, MNB, own estimatesThe not-so-good part of the story was the lack of any decrease by the officially calculated four core inflation indicators, which remained entirely unchanged in August. Most importantly, core inflation stayed at 3.7% yoy and the MNB's adjusted core inflation, the one excluding indirect tax effects, remained at 3.2% yoy. But overall, the August dataset was still more positive than negative, given that it reflected a further small step downwards, to the immediate vicinity of the 3% target for the headline rate, together with a marginally higher reading for adjusted core inflation, the main policy indicator. On this basis, the MNB's next quarterly inflation report, which is due to go to the Monetary Council on September 24, is likely to come up with a fundamentally optimistic conclusion.On that basis, the Monetary Council is unlikely to want any higher money market rates or any sig...

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