Inflation lower in February but still remains above expectation

HUNGARY - In Brief 10 Mar 2020 by Istvan Racz

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CPI-inflation for February came out at 4.4% yoy this morning. The not negligible good news is that it indeed fell from 4.7% yoy in January, which was a big negative surprise then. But the bad news is that it did not shrink at the rate expected by the MNB (to 4.2% yoy) or the analyst consensus (4.1% yoy by the Portfolio.hu poll). Further bad news is that this moderate decrease by the yoy headline rate came together with a 4.3% mom drop by fuel prices. As a consequence, non-fuel inflation rose from 4.1% yoy in January to 4.2%, core inflation from 4% yoy to 4.1% and adjusted core inflation from 3.7% yoy to 3.8%.At any rate, the February data must be forint-positive, as it suggests that it would be somewhat difficult for the MNB to follow any global loosening trend that is likely to take over in short term in view of the heavy pressures on output generated by the coronavirus disease. Quite clearly, the 6.1% yoy average depreciation of the forint against the euro in February must have made a major contribution to the above-forecast inflation numbers. For the MNB, which is now likely to be helped by the collapsing crude oil price, the key risk remains the possible deterioration of market sentiment to emerging economies, which is quite usual when risk aversion is on the rise globally. This could easily push EURHUF through the 340 line, and that in turn could increase inflationary expectations domestically, amidst the conditions of rapid wage growth and robust consumer demand.For the foregoing reason, it would be indeed difficult for the MNB to loosen policy at this moment. Yesterday, the Bank added HUF 50bn to the FX swap stock (essentially for one-month maturity), but that s...